[JPRT 107-53]
[From the U.S. Government Printing Office]



 
 107th Congress         JOINT COMMITTEE PRINT                      S. Prt.
 2d Session                                                        107-53
_________________________________________________________________________



                      COUNTRY REPORTS ON ECONOMIC
                       POLICY AND TRADE PRACTICES

                               ----------                              

                              R E P O R T

                            SUBMITTED TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                                  AND

                          COMMITTEE ON FINANCE

                                 OF THE

                              U.S. SENATE

                                AND THE

                              COMMITTEE ON
                        INTERNATIONAL RELATIONS

                                  AND

                      COMMITTEE ON WAYS AND MEANS

                                 OF THE

                     U.S. HOUSE OF REPRESENTATIVES

                                 BY THE

                          DEPARTMENT OF STATE

       IN ACCORDANCE WITH SECTION 2202 OF THE OMNIBUS TRADE AND 
                      COMPETITIVENESS ACT OF 1988

Available via World Wide Web: http://www.access.gpo.gov/congress/senate

                                     


                               

                          FEBRUARY 2002

Printed for the use of the Committees on Foreign Relationsand Finance
  of the U.S. Senate, and International Relations and Ways and Means
  of the U.S. House of Representatives








         COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES


107th Congress 
 2d Session              JOINT COMMITTEE PRINT                  S. Prt.
                                                                 107-53
_______________________________________________________________________

                      COUNTRY REPORTS ON ECONOMIC
                       POLICY AND TRADE PRACTICES

                               __________

                              R E P O R T

                            SUBMITTED TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                                  AND

                          COMMITTEE ON FINANCE

                                 OF THE

                              U.S. SENATE

                                AND THE

                              COMMITTEE ON

                        INTERNATIONAL RELATIONS

                                  AND

                      COMMITTEE ON WAYS AND MEANS

                                 OF THE

                     U.S. HOUSE OF REPRESENTATIVES

                                 BY THE

                          DEPARTMENT OF STATE

       IN ACCORDANCE WITH SECTION 2202 OF THE OMNIBUS TRADE AND 
                      COMPETITIVENESS ACT OF 1988

                                     



                            FEBRUARY 2002

Printed for the use of the Committees on Foreign Relations and Finance
  of the U.S. Senate, and International Relations and Ways and Means
  of the U.S. House of Representatives

                               -----

                   U.S. GOVERNMENT PRINTING OFFICE
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                     COMMITTEE ON FOREIGN RELATIONS

                      JOSEPH R. BIDEN, Jr., Delaware, Chairman


PAUL S. SARBANES, Maryland              JESSE HELMS, North Carolina
CHRISTOPHER J. DODD, Connecticut        RICHARD G. LUGAR, Indiana  
JOHN F. KERRY, Massachusetts            CHUCK HAGEL, Nebraska 
RUSSELL D. FEINGOLD, Wisconsin          GORDON H. SMITH, Oregon 
PAUL D. WELLSTONE, Minnesota            BILL FRIST, Tennessee 
BARBARA BOXER, California               LINCOLN D. CHAFEE, Rhode Island 
ROBERT G. TORRICELLI, New Jersey        GEORGE ALLEN, Virginia 
BILL NELSON, Florida                    SAM BROWNBACK, Kansas 
JOHN D. ROCKEFELLER IV, West Virginia   MICHAEL B. ENZI, Wyoming 

                        Edwin K. Hall, Staff Director
               Patricia A. McNerney, Republican Staff Director
                              ----------                              


                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia    CHARLES E. GRASSLEY, Iowa
TOM DASCHLE, South Dakota                ORRIN G. HATCH, Utah
JOHN BREAUX, Louisiana                   FRANK H. MURKOWSKI, Alaska
KENT CONRAD, North Dakota                DON NICKLES, Oklahoma
BOB GRAHAM, Florida                      PHIL GRAMM, Texas
JAMES M. JEFFORDS (I), Vermont           TRENT LOTT, Mississippi
JEFF BINGAMAN, New Mexico                FRED THOMPSON, Tennessee
JOHN F. KERRY, Massachusetts             OLYMPIA J. SNOWE, Maine
ROBERT G. TORRICELLI, New Jersey         JON KYL, Arizona
BLANCHE L. LINCOLN, Arkansas             CRAIG THOMAS, Wyoming


                      John Angell, Staff Director
        Kolan Davis, Republican Staff Director and Chief Counsel








                  COMMITTEE ON INTERNATIONAL RELATIONS

                        HENRY J. HYDE, Illinois, Chairman
BENJAMIN A. GILMAN, New York           TOM LANTOS, California
JAMES A. LEACH, Iowa                   HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska                GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey       ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                      Samoa
ELTON GALLEGLY, California             DONALD M. PAYNE, New Jersey
ILEANA ROS-LEHTINEN, Florida           ROBERT MENENDEZ, New Jersey
CASS BALLENGER, North Carolina         SHERROD BROWN, Ohio
DANA ROHRABACHER, California           CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California            EARL F. HILLIARD, Alabama
PETER T. KING, New York                BRAD SHERMAN, California
STEVE CHABOT, Ohio                     ROBERT WEXLER, Florida
AMO HOUGHTON, New York                 JIM DAVIS, Florida
JOHN M. McHUGH, New York               ELIOT L. ENGEL, New York
RICHARD BURR, North Carolina           WILLIAM D. DELAHUNT, Massachusetts
JOHN COOKSEY, Louisiana                GREGORY W. MEEKS, New York
THOMAS G. TANCREDO, Colorado           BARBARA LEE, California
RON PAUL, Texas                        JOSEPH CROWLEY, New York
NICK SMITH, Michigan                   JOSEPH M. HOEFFEL, Pennsylvania
JOSEPH R. PITTS, Pennsylvania          EARL BLUMENAUER, Oregon
DARRELL E. ISSA, California            SHELLEY BERKLEY, Nevada
ERIC CANTOR, Virginia                  GRACE NAPOLITANO, California
JEFF FLAKE, Arizona                    ADAM B. SCHIFF, California
BRIAN D. KERNS, Indiana                DIANE E. WATSON, California
JO ANN DAVIS, Virginia                 
                                     
               Thomas E. Mooney, Sr., Staff Director/General Counsel
                     Robert R. King, Democratic Staff Director
            Kristin Gilley, Senior Professional Staff Member and Counsel

                              ----------                              

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. MCNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona              LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel

                                 (iii)









                            C O N T E N T S

                              ----------                              
                                                                   Page

Foreword.........................................................   vii
Letter of Transmittal............................................    ix
Introduction.....................................................    xi
Text of Section 2202 of the Omnibus Trade and Competitiveness Act 
  of 1988........................................................  xiii
Notes on Preparation of the Reports..............................    xv
Some Frequently Used Acronyms....................................  xvii

                          COUNTRY REPORTS \1\

Africa:
    Ghana........................................................     1
    Nigeria......................................................     5
    South Africa.................................................    12
East Asia and the Pacific:
    Australia....................................................    19
    China........................................................    23
    Hong Kong \1\................................................    30
    Indonesia....................................................    35
    Japan........................................................    42
    Korea, Republic of...........................................    48
    Malaysia.....................................................    54
    Philippines..................................................    62
    Singapore....................................................    70
    Taiwan \1\...................................................    74
    Thailand.....................................................    81
Europe:
    European Union...............................................    89
    Austria......................................................    98
    Belgium......................................................   104
    Bulgaria.....................................................   109
    Czech Republic...............................................   116
    Denmark......................................................   122
    Finland......................................................   128
    France.......................................................   134
    Germany......................................................   138
    Greece.......................................................   143
    Hungary......................................................   149
    Ireland......................................................   154
    Italy........................................................   161
    The Netherlands..............................................   167
    Norway.......................................................   172
    Poland.......................................................   175
    Portugal.....................................................   182
    Romania......................................................   186
    Russia.......................................................   191
    Spain........................................................   198
    Sweden.......................................................   205
    Switzerland..................................................   208
    Turkey.......................................................   212
    Ukraine......................................................   217
    United Kingdom...............................................   224
The Americas:
    Argentina....................................................   229
    Bahamas......................................................   233
    Bolivia......................................................   239
    Brazil.......................................................   244
    Canada.......................................................   252
    Chile........................................................   256
    Colombia.....................................................   263
    Costa Rica...................................................   272
    Dominican Republic...........................................   278
    Ecuador......................................................   283
    El Salvador..................................................   288
    Guatemala....................................................   293
    Haiti........................................................   298
    Honduras.....................................................   303
    Jamaica......................................................   309
    Mexico.......................................................   315
    Nicaragua....................................................   322
    Panama.......................................................   326
    Paraguay.....................................................   332
    Peru.........................................................   336
    Trinidad and Tobago..........................................   342
    Uruguay......................................................   346
    Venezuela....................................................   351
Near East and North Africa:
    Algeria......................................................   359
    Bahrain......................................................   364
    Egypt........................................................   369
    Israel.......................................................   375
    Jordan.......................................................   379
    Kuwait.......................................................   383
    Morocco......................................................   388
    Oman.........................................................   393
    Saudi Arabia.................................................   399
    Tunisia......................................................   404
    United Arab Emirates.........................................   409
South Asia:
    Bangladesh...................................................   415
    India........................................................   422
    Pakistan.....................................................   429

----------
\1\ Reports also cover the following areas: Hong Kong and Taiwan.










                                FOREWORD

                              ----------                              

    The reviews on individual country economic policy and trade 
practices included in this report were prepared by the 
Department of State in accordance with Section 2202 of the 
Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418).
    Modeled on the State Department's annual reports on country 
human rights practices, the reports are intended to provide a 
single, comparative analysis of the economic policies and trade 
practices of countries with which the United States has 
significant economic or trade relationships. Because of the 
increasing importance of, and interest in, trade and economic 
issues, these reports are prepared to assist members in 
considering legislation in these areas.
                                      Joseph R. Biden, Jr.,
                          Chairman, Committee on Foreign Relations.

                                                Max Baucus,
                                    Chairman, Committee on Finance.

                                             Henry J. Hyde,
                    Chairman, Committee on International Relations.

                                               Bill Thomas,
                             Chairman, Committee on Ways and Means.

                                 (vii)

                                     






                         LETTER OF TRANSMITTAL

                              ----------                              

                                  U.S. Department of State,
                                  Washington, DC, January 11, 2002.

Hon. Joseph R. Biden, Jr., Chairman,
Committee on Foreign Relations.

Max Baucus, Chairman,
Committee on Finance.

Henry J. Hyde, Chairman,
Committee on International Relations.

Bill Thomas, Chairman,
Committee on Ways and Means.

    Dear Sirs: Pursuant to Section 2202 of the Omnibus Trade 
and Competitiveness Act of 1988, we are pleased to transmit the 
report entitled ``Country Reports on Economic Policy and Trade 
Practices.'' The report provides a detailed review of major 
economic policies and trade practices of countries with which 
the United States has significant economic or trade 
relationships.
    We hope this information is helpful to you. Please let us 
know if we can provide any further information on this or any 
other matter.
            Sincerely,
                                             Paul V. Kelly,
                          Assistant Secretary, Legislative Affairs.

                                  (ix)

                                     





                              INTRODUCTION

                              ----------                              


         Country Reports on Economic Policy and Trade Practices

    The Department of State is submitting to the Congress its 
Country Reports on Economic Policy and Trade Practices in 
compliance with Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988. As the legislation requires, we 
have prepared detailed reports on the economic policy and trade 
practices of countries with which the United States has 
significant economic or trade relationships. The Department of 
State's 13th annual report includes reports on 76 countries, 
customs territories and customs unions.
    Each country report contains ten sections.

   Key Economic Indicators: Economic indicators in the 
        national income, monetary, and trade accounts.

   General Policy Framework: Overview of macroeconomic 
        trends.

   Exchange Rate Policies: Their impact on the price 
        competitiveness of U.S. exports.

   Structural Policies: Changes that may affect U.S. 
        exports to that country.

   Debt Management Policies: Implications for trade 
        with the U.S.

   Significant Barriers to U.S. Exports and Investment: 
        Formal and informal barriers to U.S. exports and 
        investment.

   Export Subsidies Policies: Measures to support 
        exports, including those by small businesses.

   Protection of U.S. Intellectual Property: Laws and 
        practices safeguarding intellectual property rights.

   Worker Rights: The final section has two parts:

    --laws and practices with respect to internationally 
            recognized worker rights, and

    --conditions of worker rights in goods-producing sectors 
            where U.S. capital is invested.

   Extent of U.S. Investment in Selected Industries: 
        U.S. investment by sector where information is 
        available.

    U.S. Embassies supplied the country report data, which is 
analyzed and reviewed by the Department of State in 
consultation with other U.S. Government agencies. The reports 
are intended to serve as general guides to economic conditions 
in specific countries.

                                  (xi)

We have worked to standardize the reports, but there are 
unavoidable differences reflecting large variations in data 
availability. In some cases, access to reliable data is 
limited, particularly in countries making transitions to market 
economies. Nonetheless, each report incorporates the best 
information currently available.

                                          E. Anthony Wayne,
                                       Assistant Secretary of State
                                 for Economic and Business Affairs.
TEXT OF SECTION 2202 OF THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF 
                    1988

                              ----------                              

    ``The Secretary of State shall, not later than January 31 
of each year, prepare and transmit to the Committee on 
[International Relations] \1\ and the Committee on Ways and 
Means of the House of Representatives, to the Committee on 
Foreign Relations and the Committee on Finance of the Senate, 
and to other appropriate committees of the Congress, a detailed 
report regarding the economic policy and trade practices of 
each country with which the United States has an economic or 
trade relationship. The Secretary may direct the appropriate 
officers of the Department of State who are serving overseas, 
in consultation with appropriate officers or employees of other 
departments and agencies of the United States, including the 
Department of Agriculture and the Department of Commerce, to 
coordinate the preparation of such information in a country as 
is necessary to prepare the report under this section. The 
report shall identify and describe, with respect to each 
country:
---------------------------------------------------------------------------
    \1\ In 1995, the Committee on Foreign Affairs changed its name to 
the Committee on International Relations.

    1. The macroeconomic policies of the country and their 
impact on the overall growth in demand for United States 
exports;
    2. The impact of macroeconomic and other policies on the 
exchange rate of the country and the resulting impact on price 
competitiveness of United States exports;
    3. Any change in structural policies [including tax 
incentives, regulation governing financial institutions, 
production standards, and patterns of industrial ownership] 
that may affect the country's growth rate and its demand for 
United States exports;
    4. The management of the country's external debt and its 
implications for trade with the United States;
    5. Acts, policies, and practices that constitute 
significant trade barriers to United States exports or foreign 
direct investment in that country by United States persons, as 
identified under section 181(a)(1) of the Trade Act of 1974 (19 
U.S.C. 2241(a)(1));
    6. Acts, policies, and practices that provide direct or 
indirect government support for exports from that country, 
including exports by small businesses;
    7. The extent to which the country's laws and enforcement 
of those laws afford adequate protection to United States 
intellectual property, including patents, trademarks, 
copyrights, and mask works; and
    8. The country's laws, enforcement of those laws, and 
practices with respect to internationally recognized worker 
rights (as defined in section 502(a)(4) of the Trade Act of 
1974), the conditions of worker rights in any sector which 
produces goods in which United States capital is invested, and 
the extent of such investment.''



                  NOTES ON PREPARATION OF THE REPORTS

                              ----------                              

    Subsections ``a'' through ``e'' of the Worker Rights 
section (section 8) are abridged versions of section 6 in the 
Country Reports on Human Rights Practices for 2000, submitted 
to the Committees on International Relations of the House of 
Representatives and on Foreign Relations of the U.S. Senate in 
January 2000. For a comprehensive and authoritative discussion 
of worker rights in each country, please refer to that report. 
Subsection ``f'' highlights conditions of worker rights in 
goods-producing sectors where U.S. capital is invested.
    The final section, Extent of U.S. Investment in Selected 
Industries, cites the U.S. direct investment position abroad 
where information is available. The Bureau of Economic Analysis 
of the U.S. Department of Commerce has supplied information on 
the U.S. direct investment position at the end of 2000 for all 
countries for which foreign direct investment has been reported 
to it. Readers should note that ``U.S. Direct Investment 
Position Abroad'' is defined as ``the net book value of U.S. 
parent companies' equity in, and net outstanding loans to, 
their foreign affiliates'' (foreign business enterprises owned 
10 percent or more by U.S. persons or companies). Where a 
figure is negative, the U.S. parent owes money to the 
affiliate. The table does not necessarily indicate total assets 
held in each country. In some instances, the narrative refers 
to investments for which figures may not appear in the table. A 
``(\1\)'' in a data cell indicates that data has been 
suppressed to avoid disclosing individual company information.




                     SOME FREQUENTLY USED ACRONYMS

                              ----------                              

ADB--Asian Development Bank
AGOA--African Growth and Opportunity Act
APEC--Asia-Pacific Economic Cooperation
BIS--Bank for International Settlements
CACM--Central American Common Market
CARICOM--Caribbean Common Market
CAP--Common Agricultural Policy (of the EU)
CBTPA--Caribbean Basin Trade Partnership Act
CCC--Commodity Credit Corporation (Department of Agriculture)
CIF--cost, insurance and freight
EBRD--European Bank for Reconstruction and Development
EFTA--European Free Trade Association
EMS--European Monetary System (of the EU)
EPZ--export processing zone
ERM--Exchange Rate Mechanism (of the EU)
EU--European Union
EXIMBANK--U.S. ExportImport Bank
FDI--foreign direct investment
FOB--free on board
FOREX--foreign exchange
FTA--free trade agreement
FTAA--Free Trade Area of the Americas
FY--fiscal year
GATS--General Agreement on Trade in Services
GATT--General Agreement on Tariffs and Trade
GDP--gross domestic product
GMO-genetically modified organism
GNP--gross national product
GSP--Generalized System of Preferences
IBRD--International Bank for Reconstruction and Development 
            (World Bank)
IFIs--international financial institutions (IMF, World Bank and 
            regional development banks)
ILO--International Labor Organization (of the United Nations)
IMF--International Monetary Fund
IDB--InterAmerican Development Bank
IPR--intellectual property rights
IT--information technology
MFN--most favored nation
NAFTA--North American Free Trade Agreement
NGOs--nongovernment organizations
NIS--Newly Independent States (of the former Soviet Union)
OECD--Organization for Economic Cooperation and Development
OPIC--U.S. Overseas Private Investment Corporation
PTT--Post, Telegraph and Telephone
SDR--Special Drawing Rights (of the IMF)
TRIPs--WTO Agreement on Trade Related Aspects of Intellectual 
            Property Rights
UR--Uruguay Round of trade negotiations in the GATT
USD--U.S. Dollar
VAT--value-added tax
WIPO--World Intellectual Property Organization
WTO--World Trade Organization



                                 AFRICA

                              ----------                              


                                 GHANA

                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                               1999     2000    \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\..........................    7,774    5,418     5,431
  Real GDP Growth (pct) \3\................      4.4      3.7       4.0
  GDP by Sector (pct):
    Agriculture............................     36.5     36.0       N/A
    Industry...............................     25.2     25.2       N/A
    Services...............................     18.5     18.7       N/A
    Government.............................     10.7     11.0       N/A
  Per Capita GDP...........................      324      294       288
  Labor Force (000s).......................    8,240    8,480     8,734
  Unemployment Rate (pct)..................       20      N/A       N/A
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).................     16.1     39.8      32.0
  Consumer Price Index (end-of-period).....     13.8     40.5      25.0
  Exchange Rate (Cedis/US$ annual average)     2,674    5,322     7,000
   Interbank...............................
 
Balance of Payments and Trade:
  Total Exports FOB \4\....................    2,012    1,941     1,982
    Exports to United States \4\...........      209      205       215
  Total Imports CIF \4\....................    3,228    2,832     2,781
    Imports from United States \4\.........      233      191       201
  Trade Balance \4\........................   -1,216     -891      -799
    Balance with United States \4\.........      -24       14        14
  External Public Debt.....................    5,974    6,038     6,200
  Fiscal Deficit/GDP (pct).................      6.5      8.5       N/A
  Current Account Deficit/GDP (pct)........     13.8     11.2      10.8
  Debt Service Payments/GDP (pct)..........      9.0      9.0       9.0
  Gold and Foreign Exchange Reserves.......      420      256       N/A
  Aid from United States...................       58       60       N/A
  Aid from All Other Sources...............      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ 2001 figures are government 2001 budget projections and post
  estimates based on most recent data available.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.


1. General Policy Framework
    Ghana operates in a free market environment under a popularly 
elected civilian government. In December 2000, opposition leader John 
Agyekum Kufuor was elected President, marking the first time in 
Ghanaian history in which one democratically elected President replaced 
another. His New Patriotic Party won 100 of 200 seats in Parliament. A 
UK-trained lawyer with longstanding ties to the United States, 
President Kufuor has called for greater foreign investment and pledged 
a ``zero tolerance'' for corruption. Former President Rawlings, who had 
been at the helm of government since December 31, 1981, observed 
constitutional term limits, and after winning elections in 1992 and 
1996 did not run in the 2000 elections. An independent judiciary acts 
as the final arbiter of Ghanaian laws.
    Since 1983 Ghana has pursued an economic reform agenda aimed 
generally at reducing government involvement in the economy and 
encouraging private sector development. This has made the country one 
of the most open-market economies in the sub-region. The current 
government's economic program is focusing on the development of Ghana's 
private sector, which has been historically weak. Roughly two-thirds of 
some 300 state-owned enterprises have been sold to private owners since 
a divestiture program began in the early 1990s. The new government has 
stated its commitment to continuing the privatization program by 
offloading some of its interest in some state-owned enterprises, 
possibly including the Tema Oil Refinery, power and water utilities, 
ports and railways, and the national airline. The government's monopoly 
on the export of cocoa was removed in 1999, but full liberalization of 
this market has not yet been implemented.
    An economic downturn due primarily to external shocks began in late 
1999, worsened in 2000, and has not abated. Despite several years of 
economic reform the country still remains vulnerable to terms of trade 
shocks. The three major commodities--gold, cocoa, and timber--
contribute over 70 percent of Ghana's foreign exchange earnings. The 
relatively low price of cocoa coupled with the increase in crude oil 
price in 2000 caused a large increase in trade loss. These factors led 
to a severe shortage of foreign exchange, rapid depreciation of the 
cedi against the dollar by about 60 percent, and an upsurge of 
inflation from 14 percent at the end of December 1999 to 41 percent at 
the end of December 2000. Imbalances caused by the terms of trade 
shocks were further exacerbated by heavy government spending and 
borrowing in the run-up to the December 2000 elections.
    The former government's hesitation to respond appropriately in an 
election year, especially to the rising cost of the supply of utility 
services and petroleum products, caused or contributed to an overall 
budget deficit of about 8.5 percent of GDP in 2000 compared to 6.5 
percent of GDP recorded in 1999. The government resorted to heavy 
domestic borrowing to make up for shortfalls from mainly non-tax 
revenue. To arrest inflation and the fast depreciating cedi, the Bank 
of Ghana (BOG), the central bank, pursued a tight monetary policy, 
increasing the primary reserve ratio from eight to nine percent. Heavy 
domestic borrowing by the government and the BOG's measures sent 
domestic lending rates from about 37 percent to about 50 percent. Real 
economic growth in 2000 was 3.3 percent, which followed the declining 
trend of 4.4 percent in 1999, and 4.7 percent in 1998.
    The new government took immediate steps to restore macroeconomic 
stability. It introduced measures to monitor and control expenditures, 
increase revenue mobilization, restructure short-term domestic debt, 
and seek debt relief under the HIPC initiative. To stem the 
accumulation of debts by the utilities and the oil refinery, the 
government took a bold step by significantly increasing fuel, water, 
and energy tariffs. The government's measures have yielded some 
positive results, as the cedi has remained stable since the beginning 
of 2001 and inflation and interest rates, though still high, have 
declined significantly. The government appears to be committed to 
sustaining this trend.
2. Exchange Rate Policy
    The foreign exchange value of the Ghanaian cedi is established 
independently through the use of the Interbank Market and Foreign 
Exchange bureaus, and currency conversion is easily accessible. 
However, the BOG dominates the Interbank Market by controlling the 
supply of large amount of surrendered proceeds from gold and cocoa. 
Ghana fully accedes to Article IV of the IMF convention on free current 
account convertibility and transfer. In general, the exchange rate 
regime in Ghana does not have any particular impact on the 
competitiveness of U.S. exports.
3. Structural Policies
    Ghana progressively lowered import quotas and surcharges as part of 
its structural adjustment program. Tariff structures are being adjusted 
in harmony with the ECOWAS Trade Liberalization Program. Import 
licensing was eliminated in 1989, but for some items such as drugs, an 
import permit is required. Imported goods currently enjoy generally 
unfettered access to the Ghanaian market.
    The government professes strong support for the principle of free 
trade, and is an active participant in the WTO. However, it is also 
committed to the development of competitive domestic industries with 
exporting capabilities. The government is expected to continue to 
support domestic private enterprise with various financial incentives. 
Ghanaian manufacturers frequently seek stronger protective measures and 
complain that Ghana's tariff structure places local producers at a 
competitive disadvantage relative to imports from countries enjoying 
greater production and marketing economies of scale. Reductions in 
tariffs have increased competition for local producers and 
manufacturers while reducing the cost of imported raw materials. The 
government has announced plans to introduce an anti-dumping bill to 
Parliament to curb the import of ``inferior'' goods as a response to 
several complaints from consumers.
    The government in 2001 reduced the 20 percent special tax on some 
of the 32 selected ``non-essential'' imported goods to 10 percent and 
removed the tax completely on the rest. Major U.S. imports still 
affected by the tax are frozen meat and poultry. This tax no longer 
applies to used clothing, powdered milk, paper and plastic products. A 
0.5 percent ECOWAS levy on all imports from non-ECOWAS countries and 
0.5 percent Export Development and Investment Fund (EDIF) levy on all 
imports were introduced in 2000 and 2001 respectively. The standard 
import duty rate was lowered from 25 percent to 20 percent in 2000. In 
July, 2000 the government increased the Value-Added Tax (VAT) from 10 
percent 12.5 percent to specifically fund education.
4. Debt Management Policies
    In March 2001, Ghana opted for debt relief under the enhanced 
Heavily Indebted Poor Country (HIPC) Initiative. Ghana is expected to 
reach HIPC Decision Point by December 2001, and the Government 
estimates a total of US$ 700 million in debt write off at the end of 
2004 when the country reaches its HIPC Completion Point. The government 
is also seeking debt relief from the Paris Club. There is currently a 
suspension in the payments of non-multilateral debts.
    Ghana's total outstanding external debt was approximately US$ 5.9 
billion at the end of the first quarter of 2001. Outstanding long-term 
debt was about US$ 5.4 billion (about 92 percent of total debt), of 
which US$ 1.6 billion and US$ 3.8 billion were owed to bilateral and 
multilateral institutions respectively. Ghana's domestic debt in mid-
2001 was estimated to be some US$ 1.8 billion, almost all in short-term 
instruments. The government was attempting to severely limit additional 
domestic borrowing, and to restructure the existing debt into longer-
term instruments. The government has announced plans to utilize 
receipts from the divestiture of state-owned enterprises to reduce the 
country's debt stock.
5. Significant Barriers to U.S. Exports
    Import licenses: Ghana eliminated its import licensing system in 
1989 but retains a ban on the importation of a narrow range of products 
that do not affect U.S. exports. Ghana is a member and active 
participant in the WTO.
    Services Barriers: The Ghanaian investment code proscribes foreign 
participation in the following sectors: small-scale wholesale and 
retail sales, taxi and car rental services with fleets of fewer than 
ten vehicles, lotteries, and barber and beauty shops. Current insurance 
law requires at least 40 percent Ghanaian ownership of insurance firms 
in Ghana.
    Standards, Testing, Labeling, and Certification: Ghana has 
promulgated its own standards for food and drugs. The Ghana Standards 
Board, the national testing authority, subscribes to accepted 
international practices for the testing of imports for purity and 
efficacy. Under Ghanaian law, imports must bear markings identifying in 
English the type of product being imported, the country of origin, the 
ingredients or components, and the expiration date, if any. Non-
complying goods are subject to government seizure. Highly-publicized 
seizures of goods (pharmaceuticals and food items) with expired shelf-
life dates have been occasionally carried out. The thrust of this law 
is to regulate imported food and drugs, but the law also applies to 
non-consumable imports as well. Locally-manufactured goods are subject 
to comparable testing, labeling, and certification requirements. Two 
destination inspection agencies contracted by the government also 
perform testing and price verification for some selected imports that 
are above US$ 5,000.
    Investment Barriers: Although the investment code incentives are 
relatively attractive, bureaucratic bottlenecks can delay the launching 
of new projects. The investment code guarantees free transferability of 
dividends, loan repayments, licensing fees and repatriation of capital. 
It also provides guarantees against expropriation or forced sale and 
delineates dispute arbitration processes. Foreign investors are not 
subject to differential treatment on taxes, access to foreign exchange 
and credit, or importation of goods and equipment. Separate legislation 
covers investments in mining and petroleum and applies equally to 
foreign and Ghanaian investors. The investment code no longer requires 
prior project approval from the Ghana Investment Promotion Center 
(GIPC).
    Government Procurement Practices: Currently, there are varying 
procedures for selling to the government, but a unified code is under 
preparation. The government is estimated to account for some 50-70 
percent of all imports into Ghana. While the Ghana Supply Company (GSC) 
acts as the principal purchasing agent of the government, its authority 
has gradually been eroded as heads of departments directly undertake 
below-threshold purchases of supplies and equipment. Former government 
import monopolies have been abolished. Parastatal entities continue to 
import some commodities, but they no longer receive government 
subsidies to finance imports.
6. Export Subsidies Policies
    The Government of Ghana does not directly subsidize exports. 
Exporters are entitled to a 100 percent refund for duty paid on 
imported inputs used in the processing of exported goods. Bonded 
warehouses have been established which allow importers to avoid duties 
on imported inputs used to produce merchandise for export. Firms 
involved in exports enjoy some fiscal incentives such as tax holidays 
and preferential tax/duty treatment on imported capital equipment. 
Firms under the export processing zones all benefit from the same 
incentives.
7. Protection of U.S. Intellectual Property
    After independence in 1957, Ghana enacted separate legislation for 
copyright (1961) and trademark (1965) protection based on British law. 
Subsequently, the government passed modified copyright and patent 
legislation in 1985 and 1992, respectively. Ghana is a member of the 
Universal Copyright Convention, the World Intellectual Property 
Organization, and the English-Speaking African Regional Intellectual 
Property Organization. IPR holders have access to local courts for 
redress of grievances. Few infringement cases have been filed in Ghana 
in recent years. Ghana has not been identified as a priority country in 
connection with either the Special 301 Watch List or Priority Watch 
List.
    Patents (Product and Process): Patent registration in Ghana 
presents no serious problems for foreign rights holders. Fees for 
registration vary according to the nature of the patent, but local and 
foreign applicants pay the same rate.
    Trademarks: Ghana has not yet become a popular location for 
imitation designer apparel and watches. In cases in which trademarks 
have been misappropriated, the price and quality disparity is generally 
apparent to all but the most unsuspecting buyer.
    Copyrights: Enforcement of foreign copyrights may be pursued in the 
Ghanaian courts, but few such cases have actually been filed in recent 
years. The bootlegging of video tapes, DVDs, and computer software are 
examples of copyright infringement taking place locally. There are no 
data available to quantify the commercial impact of the sales of these 
pirated items, but the evidence suggests that sales are not being made 
on a large scale. There is no evidence of a significant export market 
for Ghanaian-pirated books, cassettes, or videotapes.
    In summary, infringement of intellectual property rights has not 
yet had a significant impact on U.S. exports to Ghana.
8. Worker Rights
    a. The Right of Association: Trade unions are governed by the 
Industrial Relations Act (IRA) of 1958, as amended in 1965 and 1972. 
Organized labor is represented by the Trades Union Congress (TUC), 
which was established in 1958. The IRA confers power on the government 
to refuse to register a trade union, but this right has not been 
exercised by the current or past governments. No union leaders have 
been detained in recent years, nor has the right of workers to freely 
associate otherwise been circumscribed. The government has announced 
plans to present to Parliament soon a new bill that unifies all the 
existing labor laws and seeks to remove government and TUC control of 
labor.
    b. The Right to Organize and Bargain Collectively: The IRA provides 
a framework for collective bargaining and protection against antiunion 
discrimination. Civil servants are prohibited by law from joining or 
organizing a trade union. In December 1992, however, the government 
enacted legislation, which allows each branch of the civil service to 
establish a negotiating committee to engage in collective bargaining 
for wages and benefits in the same fashion as trade unions in the 
private sector. While the right to strike is recognized in law and in 
practice, the government has on occasion taken strong action to end 
strikes, especially in cases involving vital government interests or 
public order. The IRA provides a mechanism for conciliation and 
arbitration before unions can resort to industrial actions or strikes. 
Over the past two years there have been several industrial actions 
involving salary increase demands, conditions of service, and severance 
awards. There have been a number of short-lived ``wild cat'' strikes by 
doctors, university professors, and industrial workers.
    c. Prohibition of Forced or Compulsory Labor: Ghanaian law 
prohibits forced labor and it is not known to be practiced. The 
International Labor Organization (ILO) continues to urge the government 
to revise legislation that permits imprisonment with an obligation to 
perform labor for offenses that are not countenanced under ILO 
Convention 105, ratified by Ghana in 1958.
    d. Minimum Age of Employment of Children: Labor legislation in 
Ghana sets a minimum employment age of 15 and prohibits night work and 
certain types of hazardous labor for those under 18. The violation of 
child labor laws is relatively common and young children of school age 
can often be found during the day performing menial tasks in the 
agricultural sector or in the markets. Observance of minimum age laws 
is eroded by local custom and economic circumstances that compel 
children to become wage earners at an early age. Inspectors from the 
Ministry of Manpower Development and Employment are responsible for 
enforcement of child labor laws.
    e. Acceptable Conditions of Work: In 1991, a Tripartite Commission 
composed of representatives from government, organized labor, and 
employers established minimum standards for wages and working 
conditions. The daily minimum wage combines wages with customary 
benefits such as a transportation allowance. The current daily minimum 
wage is cedis 5,500, about 75 cents at the present rate of exchange, a 
sum that does not permit a single wage earner to support a family. A 
much-vaunted, government-commissioned study on civil service reform 
(including a serious revision of grades and salary levels) was 
implemented in June 1999. By law the maximum workweek is 45 hours, but 
collective bargaining has established a 40-hour week for most unionized 
workers.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Ghana 
is concentrated in the primary and fabricated metals sectors (gold 
mining and aluminum smelting), food and related products (tuna canning 
and beverage bottling), petroleum marketing, data processing, and 
telecommunications. Labor conditions in these sectors do not differ 
significantly from the norm, except that wage scales in the formal 
metals and mining sectors are substantially higher than elsewhere in 
the Ghanaian economy. U.S. firms have a good record of compliance with 
Ghanaian labor laws.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  4
Total Manufacturing.........  ...........  (\1\)
  Food & Kindred Products...  0
  Chemicals & Allied          0
   Products.
  Primary & Fabricated        (\1\)
   Metals.
  Industrial Machinery and    0
   Equipment.
  Electric & Electronic       0
   Equipment.
  Transportation Equipment..  0
  Other Manufacturing.......  0
Wholesale Trade.............  ...........  0
Banking.....................  ...........  0
Finance/Insurance/Real        ...........  0
 Estate.
Services....................  ...........  0
Other Industries............  ...........  0
    Total All Industries....  ...........  (\1\)
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                NIGERIA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                               1999     2000    \1\ 2001
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\..........................     35.7     37.0      39.0
  Real GDP Growth (pct)....................      2.7      3.8       4.0
  GDP by Sector (pct):
    Industrial \3\.........................     17.3     17.0       N/A
    Agriculture............................     40.7     41.5       N/A
    Services...............................     33.0     34.0       N/A
    Government.............................     11.0     25.0       N/A
  Per Capita GDP (US$) \4\.................      260      270       280
  Labor Force (Millions)...................     40.1     38.9       N/A
  Unemployment Rate (pct) \5\..............      3.0      3.1       5.0
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).................     31.6     48.1       N/A
  Consumer Price Inflation.................      6.6      8.0      18.0
  Exchange Rate (Naira/US$--annual average)     98.2      104       112
   \6\.....................................
  Free Market Rate.........................      101      110       132
 
Balance of Payments and Merchandise Trade:
  Total Exports FOB \7\....................     12.9     19.1       N/A
    Exports to United States \8\...........      4.4      7.9       N/A
  Total Non-Oil Exports \8\ \9\............     0.20     0.24       N/A
  Total Imports CIF \7\....................    (8.6)    (8.7)       N/A
    Imports from United States \8\.........      0.6      0.5       N/A
  Trade Balance \7\........................      4.3     12.4       N/A
    Balance with United States \8\.........      3.8      7.4       N/A
  Current Account Deficit/GDP (pct)........      1.2     18.1       N/A
  External Public Debt.....................     28.1     27.8       N/A
  Fiscal Deficit/GDP (pct).................      8.4      2.9       N/A
  Debt Service Payments/GDP (pct)..........      1.5      1.7       N/A
  Gold and Foreign Exchange Reserves.......      5.5      9.9      11.9
  Aid from United States (US$ millions)         37.5      108       103
   \10\....................................
  Aid from All Other Sources...............      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ 2001 figures, except exchange rates, are estimates based on
  available Central Bank of Nigeria (CBN) monthly data, October 2001
  (unless otherwise noted).
\2\ GDP at current factor cost. Conversion to U.S. dollars at CBN rate
  104 naira per dollar for 2000.
\3\ Total GDP for the Industrial sector (includes oil/gas,
  manufacturing, and mining). Percentage changes calculated in local
  currency.
\4\ Source: IBRD.
\5\ Real unemployment is estimated at 50 percent by unofficial sources.
  According to the CBN, official statistics are based on the number of
  unemployed registered with the Federal Ministry of Labor.
  Underemployment is estimated at 20 percent by the CBN.
\6\ Annual average Interbank Foreign Exchange Market Rate.
\7\ 2000 figures are CBN figures.
\8\ 2000 figures are January-December.
\9\ Source: Federal Office of Statistics
\10\ Aid level in 2001 does not include military assistance provided
  under Operation Focus Relief.


1. General Policy Framework
    With an estimated 125 million people, Nigeria is Africa's most 
populous nation. It is also the United States' fifth largest oil 
supplier. Nigeria potentially could offer investors a lowcost labor 
pool, abundant natural resources, and the largest domestic market in 
subSaharan Africa. However, its economy remains sluggish, its market 
potential unrealized. The country suffers from ill-maintained 
infrastructure, possesses an inconsistent regulatory environment, and 
enjoys a well-deserved reputation for endemic crime and corruption. 
Following decades of misrule under military strongmen, Nigeria's 
transportation, communications, health and power public services were a 
mess. Once a breadbasket, Nigeria witnessed a severe deterioration of 
its agricultural sector. Social, religious, and ethnic unrest, and a 
lack of effective due process, further complicate business ventures in 
Nigeria. Moreover, the government remains highly over-reliant on oil 
exports for its revenue and thus subject to the vagaries of the world 
price for petroleum. Investors must carefully research any business 
opportunity and avoid those opportunities that appear ``too good to be 
true.''
    The democratically elected civilian government of President 
Olusegun Obasanjo, inaugurated in May 1999, embarked on a program to 
improve the country's economic performance and refurbish its image. 
Ties have been reestablished with the international financial 
institutions and donor governments. Special panels have been 
established to investigate past government contracts and allegations of 
corruption. President Obasanjo has promised accountability and respect 
for the rule of law, and after years of harsh military rule, the impact 
on the public of this promise is dramatic.
    To strengthen the economy, the Obasanjo administration has embarked 
on an extensive reform program. Government controls over foreign 
investment have been eliminated. Previous government decrees that 
inhibited competition or conferred monopoly powers on public 
enterprises in the petroleum, telecommunications, power, and mineral 
sectors have been repealed or amended. Privatization of government 
enterprises continues, albeit at a very slow pace. Key privatizations 
of the national telecommunications monopoly NITEL and the electricity 
utility NEPA are anticipated. The government continues to seek a more 
painless, less confrontational mechanism for deregulation of the 
downstream petroleum sector. On the down side, tariffs on numerous 
products and even raw material inputs and capital equipment remain 
excessively high, leading to chronic tariff avoidance by Nigerian 
importers. The government has sought to enforce its tariff policy 
through 100 percent inspection of all goods entering the country.
    The National Assembly approved the 2001 budget prior to the 
beginning of the calendar year, a significant accomplishment compared 
to the 2000 budget process. The government in 2000 also succeeded in 
lowering its budget deficit to just 2.9 percent of GDP. Unfortunately, 
the deficit could widen again in 2001 as expenditure patterns for the 
federal, state and local governments display loose fiscal control, 
resulting in high liquidity problems throughout the economy. As a 
result, inflation which had fallen to just 6 percent by the end of 2000 
surged to about 18 percent by August 2001. In 2001, the government also 
continued deficit funding for the budget through the issuance of 
treasury bills. A new treasury bill, the Central Bank Certificate of 
Deposit, was introduced early in 2001 to mop up excess liquidity in the 
banking system. Despite opposition from the IMF, the Nigerian 
government defends its expansionary budgetary policies by insisting its 
poverty alleviation programs demand that adequate funds be expended for 
them to succeed. But even with more prudent, qualitatively improved 
fiscal behavior from the federal government, the Nigerian pattern of 
government expenditure continues to shift to the state and local 
government levels. The federal government exercises relatively little 
control over the caliber of state government spending. An improved oil 
revenue stream in 2000 due to high world oil prices fueled the demand 
for increased state revenue allocations from this ``oil windfall.''
    Throughout most of 2000, Nigeria's lively parallel market placed 
about a five percent discount on the Nigerian Naira. However, during 
2001 this discount expanded to 17-20 percent as the government from 
April on essentially froze its official exchange rate at about N111:1. 
Unusually heavy government spending early in the year and the transfer 
of public sector funds to commercial banks further exacerbated the 
liquidity overhang. At the same time the government sought to stabilize 
the Naira which encouraged widespread improper behavior by financial 
institutions and others who sought to take advantage of attractive 
currency arbitrage opportunities. The Central Bank of Nigeria (CBN) is 
implementing enforcement mechanisms to reduce this foreign exchange 
``round-tripping''syndrome.
2. Exchange Rate Policy
    In early 2000, a single interbank foreign exchange market rate 
(IFEM) was established for all foreign exchange transactions. Under 
this rate, which has become in effect the official exchange rate, 
commercial banks, oil companies, and the CBN can transact foreign 
exchange. However, all requests for foreign exchange transactions must 
be made through commercial banks who then must comply with required CBN 
documentation procedures for foreign exchange procurement. Companies 
and individuals may hold domiciliary accounts in private banks, and 
account holders have unfettered use of the funds. Foreign investors may 
bring capital into the country to finance investments, and remit 
dividends without prior Ministry of Finance approval. Bureau de Change 
offices are allowed a maximum of $5,000 per transaction.
3. Structural Policies
    Although the Nigerian government maintains a system of 
``incentives'' to foster the location of particular industries in 
economically disadvantaged areas, to promote research and development 
in Nigeria, and to favor the use of domestic labor and raw materials, 
in reality these programs have done little to benefit Nigeria's 
economic development. ``Pioneer'' industries may enjoy a nonrenewable 
tax holiday of five years, or seven years if the pioneer industry is 
located in an economically disadvantaged area. In addition, a number of 
Export Processing Zones (EPZs) have been established, most notably in 
southeastern Nigeria in Calabar, Cross River State. Currently, at least 
75 percent of production from an EPZ enterprise must be exported, 
although this percentage requirement may decrease if proposed 
regulatory changes are implemented. Unfortunately, to date only a 
minute level of exports, mostly to West African locations, has been 
registered from Nigeria's EPZs.
    In 1995, Nigeria liberalized its foreign investment regime, 
allowing 100 percent foreign ownership of firms outside the petroleum 
sector. Investment in the petroleum sector is still limited to existing 
joint ventures or productionsharing agreements. Foreign investors may 
buy shares of any Nigerian firm except those on a ``negative list'' 
(for example, manufacturers of firearms and ammunition and military and 
paramilitary apparel). Foreign investors must register with the 
Nigerian Investment Promotion Commission after incorporation under the 
Companies and Allied Matters Decree of 1990. The Decree also abolishes 
the expatriate quota system, except in the oil sector, and prohibits 
nationalization or expropriation of a foreign enterprise by the 
Nigerian government except for such cases determined to be in the 
national interest.
    Criminal fraud conducted against unwary investors and personal 
security are chronic problems in Nigeria. Called ``419 fraud'' after 
the relevant section of the Nigerian criminal code, these ``advance-
fee'' schemes target foreigners and Nigerians alike through the mail, 
the internet, and fictitious companies. Despite improved law 
enforcement efforts, the scope of the financial fraud continues to 
bring international notoriety to Nigeria and constitutes a serious 
disincentive to commerce and investment. Companies and individuals 
seeking to conduct business with a Nigerian firm or individual should 
conduct the appropriate due diligence to ascertain they are not the 
victims of 419 crime. Meanwhile, crime against individuals, both 
Nigerian and expatriate, in the form of carjackings, robberies, 
extortion, etc. is rampant.
4. Debt Management Policies
    In August 2000, Nigeria and the IMF agreed to a precautionary one 
year, $1 billion Stand-by Arrangement. By August 2001, Nigeria had 
missed some of the key economic reform and budgetary targets agreed 
upon earlier under the Stand-by. Despite the missed targets, the IMF 
appears to be committed to working with Nigeria to develop a follow up 
arrangement.
    In December 2000, Nigeria reached agreement with the creditor Paris 
Club governments to reschedule over $23 billion in debt. Nigeria paid 
Paris Club creditors $700 million in 2000 and $1 billion in 2001. Under 
the agreement, roughly $20 billion of Nigeria's debt would be 
rescheduled over eighteen years with three years grace, while the 
remainder of Nigeria's debt would be rescheduled over the next five to 
nine years. Unfortunately, Nigeria has been unable to conclude 
bilateral agreements with most of its Paris Club creditors, despite 
extensions to the original April 15, 2001, deadline, and prospects for 
rescheduling remain tied to the outcome of events with the IMF. 
Discussions with the IMF and World Bank continue on a medium term 
economic program, and Nigeria is making some progress at meeting their 
criteria. According to the CBN's 2000 Annual Report, debt service 
payments in 2000 amounted to US $1,714.3 million, a marginal decline of 
$10.6 million from the 1999 level but more than the budgeted $1.5 
billion.
5. Significant Barriers to U.S. Exports
    Initially implemented to restore Nigeria's agricultural sector and 
to conserve foreign exchange, import bans on foodstuffs had been 
severely compromised by widespread smuggling, food shortages, and 
sharply higher domestic prices for the protected items and domestic 
substitutes. Import bans on almost all agricultural commodities have 
been lifted in recent years. However, some of the ban eliminations are 
not being respected by Nigerian customs. The inconsistent, non-
transparent application of rules by Government of Nigeria agencies 
poses a significant challenge for U.S. exports. Import restrictions 
still apply to aircraft and oceangoing vessels.
    While the Government of Nigeria continues to implement 
protectionist policies, highlighted by prohibitive import duties of up 
to 100 percent, tariff changes announced by the Government of Nigeria 
in December 2000 and amended in January 2001 both reduced and increased 
tariffs on a broad range of imported items. In particular, tariffs on 
some agricultural commodities remain extremely high and fully negate 
benefits to U.S. exporters of the Government of Nigeria's lifting of 
specific commodity import bans. While most Nigerian importers succeed 
in evading payment of the full tariffs, U.S. exporters who are careful 
to play by the rules report they are often disadvantaged and undercut 
by non-U.S. exporters who collaborate with Nigerian importers to avoid 
tariff payments, particularly on agricultural products. Immediately 
after lifting its longtime ban on corn imports, the Government of 
Nigeria placed a 70 percent duty on this grain. In conjunction with 
other surcharges and taxes, the effective tariff on corn imports is 
more than 80 percent. The Government of Nigeria's import duty for wheat 
imports increased from 7.5 to 15 percent in 2000. The U.S. share of 
Nigeria's wheat import market is nearly 90 percent. The effective 
import duty on rice was increased to approximately 85 percent. Duties 
on branded vegetable oil were increased from 35 percent to 60 percent 
and on hatchable eggs from 50 percent to 80 percent. Apples, fruit 
juices, and woven fabrics also face stiffer tariffs following the 
January 2001 tariff changes. The import of vegetable oil in bulk is 
banned.
    There continues to be pressure from Nigerian manufacturers on the 
government to lower tariffs on raw material inputs and machinery. 
Tariffs were reduced significantly to as low as five percent on such 
items as non-combed cotton, synthetic filament yarn, newsprint, textile 
and industrial machinery, vehicles, tractors, and chemicals. Cement 
imports must be imported in bulk only of not less than 10,000 mt or the 
full capacity of the carrying vessel.
    Nigeria is a long-standing member of the World Trade Organization 
(WTO). Its current tariff structure reflects revisions aimed at 
narrowing the range of custom duties, increasing rate coverage in line 
with WTO provisions, and decreasing import prohibitions. Overall, 
Nigeria continues slowly to reduce its tariffs and duties, although 
some excise duties eliminated in 1998 have been restored for certain 
goods such as cigarettes, cigars, tobacco, and spirits. For 1999, a 25 
percent import duty rebate that was granted importers in late 1997 was 
abolished. About 500 tariff lines were modified in 2001, including 
upward duty revisions averaging 25 percent on 70 tariff lines (on 
mostly agricultural products) and downward revisions of generally less 
than 10 percent on about 430 tariff lines. This roller-coaster raising 
and lowering of tariffs has resulted in a slight decrease in average 
tariff levels in 2001.
    Nigeria's ports continue to be a major hindrance for imports. 
Importers bemoan excessively long clearance procedures, petty 
corruption, the extremely high berthing and unloading costs, and 
arbitrary application of Nigerian regulations. All unaccompanied 
imports and exports regardless of value require pre-shipment inspection 
(PSI) and must be accompanied by an import duty report (IDR). The 
Nigerian Customs Service will confiscate goods arriving without an IDR. 
In addition, all goods are assessed a onepercent surcharge to cover the 
cost of inspection. In January 2001, the Government of Nigeria 
announced that all imported containers and vehicles must enter Nigeria 
through its ports. This policy was implemented in an attempt to halt 
the transshipment of vehicles and products from neighboring countries. 
In June 2001, the Government of Nigeria ordered 100 percent inspection 
by Nigerian Customs and the Nigerian Ports Authority of all goods 
entering Nigeria. This move was made in a bid to check the growing 
incidence of under-valuation of imports and smuggling, specifically 
according to the government, firearms and ammunition. The result of 
this enhanced inspection regime has been severe port congestion as 
ports lack the facilities to cope with the widely expanded operations. 
The Government of Nigeria has announced that it intends to continue the 
100 percent inspection regime indefinitely and would stop the pre-
shipment inspection (PSI) system.
    The Obasanjo Administration has pledged to practice open and 
competitive contracting for government procurement, and anti-corruption 
is an energetic and central plank of the current government's 
procurement policies. However, U.S. companies continue to experience 
serious problems with non-transparent contract negotiations and 
corruption at high levels of the Nigerian government. Foreign companies 
incorporated in Nigeria are entitled to national treatment, and tenders 
for government contracts are published in Nigerian and international 
newspapers. The government has prepared guidelines for the procurement 
process. (Proper precautions should be exercised by prospective 
contractors to avoid possible ``419'' problems.) According to 
government sources, approximately five percent of all government 
procurement contracts are awarded to U.S. companies. However, numerous 
U.S. companies have experienced difficulties in landing government 
contracts despite their alleged technical and financial advantages.
6. Export Subsidy Policies
    On paper, the Nigerian Export Promotion Council (NEPC) administers 
export incentive programs, including a duty drawback program, an export 
development fund, tax relief and capital assets depreciation 
allowances, and a foreign currency retention program. The effectiveness 
of these programs for more than a limited number of beneficiaries is 
dubious and their non-potency is reflected in Nigeria's export 
proceeds. In 2000, Nigeria exports increased by almost 50 percent, 
almost entirely due to higher prices for hydrocarbons. Although non-oil 
exports increased by 27 percent, its overall share in total exports in 
real terms actually decreased from 1.6 percent in 1999 to only 1.3 
percent in 2000. The CBN reported in September that there has not been 
any increase in non-oil export earnings yet in 2001. The duty drawback 
or manufacturing inbond program was designed to allow the duty free 
importation of raw materials to produce goods for export, contingent on 
the issuance of a bank guarantee. The performance bond is discharged 
upon evidence of product exportation and repatriation of foreign 
exchange. Though meant to promote industrial exports, these schemes 
have been burdened by inept administration, confusion among 
industrialists, and corruption, causing in some cases losses to those 
manufacturers and exporters who opted to use them.
7. Protection of U.S. Intellectual Property
    Nigeria is a signatory to the Universal Copyright Convention and 
the Berne Convention. In 1993, Nigeria also became a member of the 
World Intellectual Property Organization (WIPO), thereby becoming party 
to most of the major international agreements on intellectual property 
rights. The Patents and Design Decree of 1970 governs the registration 
of patents, and the Standards Organization of Nigeria is responsible 
for issuing patents, trademarks, and copyrights. Once conferred, a 
patent conveys an exclusive right to make, import, sell, or use the 
products or apply the process. The Copyright Decree of 1988, based on 
WIPO standards and U.S. copyright law, criminalizes counterfeiting, 
exporting, importing, reproducing, exhibiting, performing, or selling 
any work without the permission of the copyright owner. This act was 
amended in 1999 to include video rental and security devices. According 
to the Nigerian Trademarks Office, the Nigerian Trademarks Law is 
almost fully TRIPS (Trade Related Intellectual Property Rights) 
compliant, but the Government of Nigeria acknowledges there is room for 
improvement in such areas as Geographical Indications (GIs). The 
Federal Ministry of Justice is currently working to ensure its updated 
Trademarks Law is wholly TRIPS compliant.
    Although existing patent and piracy laws are considered reasonable, 
enforcement remains extremely weak and slow. Piracy of copyrighted 
material is widespread and includes a large portion of the 
pharmaceutical market and virtually 100 percent of the Nigerian 
recordings and home video market. Foreign companies rarely have sought 
trademark or patent protection in Nigeria because it was generally 
perceived as ineffective. Few cases involving infringement of 
nonNigerian copyrights have been successfully prosecuted in Nigeria, 
while the few court decisions that have been rendered have been 
inconsistent. Most copyright cases have been settled out of court. 
However, there are signs the pattern of abuse in intellectual property 
rights protection is being reversed. Nigerian companies, banks, and 
government agencies are increasingly being forced to procure only 
licensed software. The National Agency for Food and Drug Administration 
and Control (NAFDAC) has made highly publicized raids on counterfeit 
pharmaceutical enterprises. Establishment of specialized courts to 
handle intellectual property rights issues is being considered. 
Nigeria's active participation in international conventions has yielded 
positive results. Law enforcement agents occasionally do carry out 
raids on suspected sites for production and sale of pirated tapes, 
videos, computer software and books. Moreover, some Nigerian companies, 
including filmmakers, have sought to protect their legitimate business 
interests by banding together in bringing lawsuits against pirate 
broadcasters.
    The recent deregulation of Nigeria's television market has led to 
the creation of a number of broadcast and cable stations. Many of these 
stations utilize large satellite dishes and decoders to pull in 
transmissions for rebroadcast, providing unfair competition for 
legitimate public and private television stations.
8. Worker Rights
    a. The Right of Association: Nigerian workers may join unions with 
the exception of members of the armed forces, police force, or 
government employees of the following departments and services: 
customs, immigration, prisons, currency printing and minting, central 
bank and telecommunications. A worker engaged in an essential service 
is required under penalty of law to provide his employer 15 days 
advance notice of his intention to cease work. Essential service 
workers include federal and state civilian employees in the armed 
services, and public employees engaged in banking, telecommunications, 
postal services, transportation and ports, public health, fire 
prevention, and the utilities sector. Employees working in an export-
processing zone may not join a union for a period of ten years from the 
startup of the enterprise.
    Under the law, a worker under a collective bargaining agreement may 
not participate in a strike unless his representative has complied with 
the requirements of the Trade Disputes Act, which include provisions 
for mandatory mediation and for referring the labor dispute to the 
government. The act allows the government in its discretion to refer 
the matter to a labor conciliator, arbitration panel, board of inquiry, 
or the National Industrial Court. The act also forbids any employer 
from granting a general wage increase to its workers without prior 
government approval. In practice, however, the act does not appear to 
be effectively enforced as strikes, including in the public sector, are 
widespread, and private sector wage increases are not submitted to the 
government for prior approval.
    Nigeria has signed and ratified the International Labor 
Organization's (ILO) convention on freedom of association, but Nigerian 
law authorizes only a single central labor body, the Nigeria Labor 
Congress (NLC). Nigerian labor law controls the admission of a union to 
the NLC, and requires any union to be formally registered before 
commencing operations. Registration is authorized only where the 
Registrar of Trade Unions determines that it is expedient in that no 
other existing union is sufficiently representative of the interests of 
those workers seeking to be registered.
    b. The Right to Organize and Bargain Collectively: Nigerian labor 
laws permit the right to organize and bargain collectively. Collective 
bargaining is common in many sectors of the economy. Nigerian law 
protects workers from retaliation by employers (i.e. lockouts) for 
labor activity through an independent arm of the judiciary, the 
Nigerian Industrial Court. Trade unionists have complained, however, 
that the judicial system's slow handling of labor cases constitutes a 
denial of redress. The government retains broad authority over labor 
matters, and often intervenes in disputes it feels challenge its key 
political or economic objectives. However, the era of government 
appointed ``sole administrators'' of unions is now over, and the labor 
movement is increasingly active and vocal on issues seen to attest the 
plight of the common worker, such as deregulation, privatization, and 
the government's failure to advance its poverty alleviation program.
    c. Prohibition of Forced or Compulsory Labor: Section 34 of the 
1999 Constitution, and the 1974 Labor Decree, prohibits forced labor. 
Nigeria has also ratified the ILO convention prohibiting forced labor. 
However, there are occasional reports of instances of forced labor, 
typically involving domestic servants. The government has limited 
resources to detect and prevent violations of the forced labor 
prohibition.
    d. Minimum Age for Employment of Children: Nigeria's 1974 labor 
decree prohibits employment of children under 15 years of age in 
commerce and industry and restricts other child labor to homebased 
agricultural or domestic work. The law further stipulates that no 
person under the age of 16 may be employed for more than eight hours 
per day. The decree allows the apprenticeship of youths under specific 
conditions. Primary education is compulsory in Nigeria, though rarely 
enforced. Actual enrollment is declining due to the continuing 
deterioration of public schools. Increasing poverty and the need to 
supplement meager family incomes has also forced many children into the 
employment market, which is unable to absorb their labor due to high 
levels of unemployment. The use of children as beggars, hawkers, or 
elsewhere in the informal sector is widespread in urban areas.
    e. Acceptable Conditions of Work: Nigeria's 1974 labor decree 
established a 40-hour workweek, prescribed two to four weeks of annual 
leave, set a minimum wage, and stipulated that workers are to be paid 
extra for hours worked over the legal limit. The decree states that 
workers who work on Sundays and legal holidays must be paid a full 
day's pay in addition to their normal wages. There is no law 
prohibiting excessive compulsory overtime. In May 2000, the federal 
government approved a new National Minimum wage for both federal and 
state employees. Under the approved wage, federal workers are to 
receive a minimum monthly wage (salary and allowance) of 7,500 naira 
($75) while state employees would receive 5,500 naira as a minimum 
monthly wage. The new wage review has, however, set many state 
governments and their employees on a collision course. While some 
states claim that they cannot afford the stipulated 5,500 naira labor 
unions and state workers insist their wages should be the same as those 
of federal workers. The last minimum wage review was carried out in 
1998 by the Abubakar regime. The 1974 decree contains general health 
and safety provisions. Employers must compensate injured workers and 
dependent survivors of those killed in industrial accidents but 
enforcement of these laws by the ministry of labor is largely 
ineffective.
    f. Rights in Sectors with U.S. Investment: Worker rights in 
petroleum, chemicals and related products, primary and fabricated 
metals, machinery, electric and electronic equipment, transportation 
equipment, and other manufacturing sectors are not significantly 
different from those in other major sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  -881
Total Manufacturing.........  ...........  58
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          22           .............................
   Products.
  Primary & Fabricated        -1           .............................
   Metals.
  Industrial Machinery and    0            .............................
   Equipment.
  Electric & Electronic       0            .............................
   Equipment.
  Transportation Equipment..  (\1\)        .............................
  Other Manufacturing.......  0            .............................
Wholesale Trade.............  ...........  (\1\)
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  274
 Estate.
Services....................  ...........  0
Other Industries............  ...........  6
    Total All Industries....  ...........  1,283
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                              SOUTH AFRICA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                               1999     2000    \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment: \2\
  GDP (at nominal prices)..................    130.0    126.1     108.1
  Real GDP Growth (pct)....................      1.9      3.1       2.5
  GDP by Sector:
    Agriculture............................      4.5      3.2       3.2
    Mining and Quarrying...................      6.4      6.5       6.9
    Manufacturing..........................     19.9     18.8      18.7
    Wholesale/Retail Trade.................     13.5     13.1      14.0
    Transport, communications..............     10.7     10.0      11.0
    Electricity, water.....................      3.6      2.9       2.8
    Construction...........................      3.0      2.8       2.8
    Financial Services.....................     17.9     20.3      20.5
    Government (community, social services)     20.4     19.3      18.7
    Other producers: social, private           (\8\)      3.1       3.1
     services..............................
  Per Capita GDP (US$).....................    3,040    2,885     2,576
  Total labor employed (millions)..........    10.37      N/A       N/A
  Total economically active (millions).....    13.53      N/A       N/A
  Official unemployment Rate (pct).........     23.3     25.8       N/A
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).................     13.6      6.2      12.9
  Consumer Price Index.....................      5.2      5.3       5.7
  Exchange Rate (Rand/US$--annual average)      6.11     6.93      8.29
   \1\.....................................
 
Balance of Payments and Trade:
  Total Exports FOB \3\....................    24.65     27.6      30.1
    Exports to United States \4\...........      3.2      4.2       4.6
  Total Imports CIF \3\....................     24.5     27.3      26.7
    Imports from United States \4\.........      2.4      2.8       2.7
  Trade Balance \3\........................     0.15      0.3       3.4
    Balance with United States \4\.........      0.6      1.4       1.9
  External Public Debt/GDP (pct) \5\.......      2.0      3.0       N/A
  Fiscal Deficit/GDP (pct).................     -2.3     -2.0      -2.5
  Current Account Deficit/GDP (pct)........     -0.4     -0.3       0.6
  Debt Service Payments/GDP (pct)..........      5.5      5.2       4.9
  Gross Gold and Foreign Exchange Reserves.     11.2     11.1       4.2
  Aid from United States (US$ millions) \6\       53       47        53
  Total Aid (US $ millions) \7\............      141      141       100
------------------------------------------------------------------------
\1\ Indicators for 2001 are projections. In South African Rand the GDP
  is projected to grow to R 896 billion and GDP per capita for 2001 is
  projected at R21,354.
\2\ The following exchange rates were used in the calculations: $1/R6.11
  for 1999, 1$/R6.93 for 2000, 1$/R8.29 for 2001.
\3\ Source: South African Reserve Bank Sept. 2001 Quarterly Bulletin.
  Exports: merchandise only--net gold exports excluded.
\4\ Source: USITC. Exports FAS, imports customs basis.
\5\ Figures for 1999, 2000 from SA Reserve Bank Quarterly Bulletin
  September 2001.
\6\ The figures represent aid from USAID only.
\7\ Source: SA Reserve Bank September 2001 Quarterly Bulletin and 2001
  Budget Review of the National Treasury.
\8\ Included above.


1. General Policy Framework
    South Africa is a middle income developing country with an economy 
marked by substantial natural resources, a sophisticated industrial 
base, and modern telecommunications and transport infrastructure. A 
member of the WTO, its policies largely promote free trade. It has a 
very developed legal sector, a sophisticated financial sector, and a 
stock exchange that ranks among the 20 largest in the world. South 
Africa has inexpensive electrical power and raw materials as well as 
lower labor costs than western industrialized countries. It has enjoyed 
positive economic growth since 1993. Following slow growth in real GDP 
of only 0.7, a turnaround started in 1999 with a 1.9 percent growth 
rate, followed by real GDP growth of 3.1 percent in 2000.
    The short and medium term prospects for South Africa are generally 
upbeat. Sound management at the macro-economic level continued to 
characterize the public finances during 2000/01 and the budget deficit 
as a percentage of the GDP was reduced to less than two percent. In 
general, the South African economy is adjusting satisfactorily to the 
challenges posed by the changing global economy. This is reflected in a 
low foreign debt-to-GDP ratio and declining interest and inflation 
rates. Even within the global economic slowdown, the South African 
economy is expected to grow perhaps 2.5 percent in 2001. With its large 
structural savings/investment gap, however, South Africa depends on 
foreign savings to support investment and growth. Progress in 
attracting higher levels of foreign direct investment (FDI) has been 
disappointing, hindered by the loss of confidence of international 
investors in emerging markets assets and South Africa's sluggish pace 
of privatization. Inflows of FDI are still more than fully offset by 
South African corporations' expansion and investment abroad as exchange 
controls are relaxed.
    The South African Reserve Bank (SARB) influences interest rates and 
controls liquidity through its rates on funds provided to private 
sector banks (repo rate), and to a lesser degree through the placement 
of government paper. In February 2000, an inflation targeting monetary 
policy framework was introduced. It is a broad based strategy for 
achieving price stability, centered on an analysis of price 
developments and not on some reference value for monetary growth. The 
SARB uses CPIX (Consumer Price Index for metropolitan and urban areas 
excluding interest costs on mortgage bonds) as the benchmark for 
inflation targeting. A CPIX band of three to six percent for the year 
2002 was set as target. With the adoption of an inflation targeting 
monetary policy framework, the SARB no longer has any intermediate 
policy targets or guidelines such as the exchange rate or growth in the 
monetary aggregates.
    The Competition Act of 1998 took effect in September 1999. The Act 
replaced the previous legislation with new provisions for a much 
stronger and more independent competition authority. The Commission has 
a range of functions, including investigating anticompetitive conduct, 
assessing the impact of mergers and acquisitions on competition and 
taking appropriate action, monitoring competition levels and market 
transparency in the economy, identifying impediments to competition, 
and playing an advocacy role in addressing these impediments. With 
record growth in merger and acquisition activity and a growing number 
of enforcement and exemption cases, the new Commission has accumulated 
a large caseload in a short period that has severely tested its 
resources. In its first year, it has handled over sixty merger cases 
and is playing a significant role in opening the economy.
    Although the country's economic fundamentals are in place, the 
Government of South Africa is still faced with serious challenges. To 
date, it has made little progress in changing the low overall income 
levels of the majority of people, addressing the highly skewed income 
distribution between the different race groups and with the creation of 
jobs. Other serious shortcomings include poor quality schools in the 
majority of areas of the country, the lack of social services for all 
and insufficient growth rates to address the huge unemployment problem.
    While poverty, inequality, unemployment, lack of skilled labor, 
corruption, increasing crime, and the acceleration in the incidence of 
HIV/AIDS remain significant sociopolitical problems, South Africa 
remains the largest and most developed country in Sub Saharan Africa.
2. Exchange Rate Policy and Foreign Exchange Controls
    The market drives South Africa's exchange rate policy with the rate 
determined by supply and demand in the currency market. While the SARB 
has the option of intervention, its current policy is that it will not 
take that action. With the adoption of an inflation targeting monetary 
policy framework, the SARB no longer has any intermediate policy 
targets or guidelines such as the exchange rate or growth in the 
monetary aggregates. The South African authorities are committed to 
allowing the value of the rand to be determined by the market.
    The South African Reserve Bank (SARB) administers foreign exchange 
controls through its Exchange Control Department. Commercial banks act 
as authorized dealers of foreign exchange on behalf of the SARB. Unless 
otherwise authorized by the Exchange Control Department, all 
transactions between residents and nonresidents of SA must be accounted 
for through the authorized dealers. In general, there are no controls 
on the removal of investment income or on capital gains by 
nonresidents. Dividends from quoted companies may be paid to 
nonresidents without the approval of the SARB. Non-quoted companies may 
pay dividends to nonresidents, providing an auditor's report shows that 
such dividends are the result of earned profits. Foreign firms may 
invest in share capital without restriction. Royalties, license fees, 
and certain other remittances to nonresidents require the approval of 
the SARB.
    In March 1997, the Finance Ministry announced phased-in measures to 
relax foreign exchange controls, including doubling foreign firms' 
access to local credit and increasing, higher retention of offshore 
income, and increased ceilings on foreign investment holdings of local 
financial institutions. In particular, South African resident private 
individuals over the age of 18 and tax payers in good standing have, 
for the fist time, been allowed to invest abroad since July 1997. The 
R500,000 limit was increased to R750,000 per person in 2000. A number 
of other exchange control relaxations were also introduced in the past 
two years. In his 2001 Budget speech, the Minister of Finance 
emphasized that the global expansion of South African firms held 
significant benefits for the economy including expanded market access, 
increased exports, and improved competitiveness. In order to support 
this expansion from a South African base, the limit on the use of South 
African funds for new approved foreign direct investment was increased 
from R50 million to R500 million. And further, as part of the 
government's commitment to African economic recovery, South African 
firms were granted the permission to use up to R750 million of local 
cash holdings for new approved foreign direct investment in Africa.
    In the absence of a positive inflow of FDI, South Africa has had to 
rely on more volatile portfolio inflows instead, which are vulnerable 
to sentiment and speculation. During 2000, the surplus balance on the 
financial account contracted sharply, falling from R29.5 billion in 
1999 to R8.5 billion. These outflows via the financial account 
contributed to in the continued fall of the value of the South African 
currency. During 2000, the Rand fell by 12 percent in value against the 
U.S. dollar and remained volatile during the course of 2001. This 
depreciation has reduced the price competitiveness of U.S. exports. The 
impact on the loss of exports of U.S. agricultural products is 
particularly strong. South Africa has a surplus balance on trade with 
the United States.
3. Structural Policies
    All prices of goods are market determined with the exception of 
petroleum products. With regard to agricultural products, the sugar 
industry is the only one in which a degree of price regulation still 
exists. Purchases by government agencies and major private buyers are 
by competitive tender for projects or supply contracts. The 
Preferential Procurement Policy Framework Act, enacted in February 
2000, aims to promote public sector procurement reform in all organs of 
state, to introduce a more uniform public sector procurement system and 
to provide implementing guidelines for the procurement policy. Under 
the Act, a government organization with a preferred provider program 
must use a preference point system. A contract will be awarded to the 
bidder with the highest number of points, provided the bidder is within 
a certain range of the lowest acceptable bid price. Regulations in 
terms of the Act were published during July 2001 to establish a formula 
for allowing preference points, e.g., for Historically Disadvantaged 
Individuals (HDIs), when tendering for a Government Procurement 
contract.
    In the 2000 Budget, several proposals were introduced with 
prospective effect, including residence-based income taxation and the 
capital gains tax. The South African tax system used to be based on the 
source principle and tax was levied on income from a source within 
South Africa irrespective of whether it was earned by a resident or 
nonresident. From 2001, South Africa has moved to a residence based 
income tax system. Tax is levied on residents of South Africa 
irrespective of where in the world the income is earned, although some 
categories of income and activities undertaken outside the country are 
exempted from South African tax. This structural change to the income 
tax was necessary to ensure that the South African tax system kept pace 
with globalization and the integration of South Africa with the world 
economy. Capital gains tax became effective from October 1, 2001. 
Effective rates for individuals will range from zero to 10.5 percent, 
retirement funds 6.25 percent, unit trusts 7.5 percent, life insurers 
from 6.25 to 15 percent, and companies 15 percent.
    Income tax payers are divided into two categories: individuals, who 
are taxed at progressive rates, and companies, taxed at 30 percent of 
taxable income. A secondary tax on companies (STC) (an additional tax 
on company income) is imposed at a rate of 12.5 percent on the net 
amount of dividends declared by a company. Withholding taxes are 
imposed on interest and royalties are remitted to nonresidents. South 
Africa has a 14 percent Value Added Tax (VAT). Exports are zero rated, 
and no VAT is payable on imported capital goods. During the recent two 
to three years, the government has undertaken measures to ease the tax 
burden on foreign and domestic investors. It has steadily reduced the 
corporate primary income tax rate from 40 percent in 1994 to 30 percent 
in 1999. In addition, the STC was halved to 12.5 percent in March 1996. 
In the 2000 Budget, extensive relief was also allowed on individual tax 
rates, with the top marginal tax rate to decrease to 42 from 45 percent 
and the lowest to 18 from 19 percent. The February 2001 Budget allowed 
for further personal income tax relief, resulting from the 
restructuring of income tax brackets. The measure boosted personal 
disposable income by R8.3 billion. The Minister of Finance also 
announced that $375 million has been set aside over the next four years 
for tax incentives targeted at strategic industrial projects that 
promise significant benefits to the South African economy such as job 
creation. During the 2000 Budget, a reduced tax rate of 15 percent of 
the first R100, 000 of taxable income was introduced for certain small 
businesses. In 2001, the tax privileges were extended to allow for the 
immediate deduction of investment expenditure in manufacturing assets 
for the year in which the investment is made.
    Labor and labor issues have a strong impact on needed investment. 
The government's privatization agenda meets with significant resistance 
from trade unions who are politically strong. Recent planned 
privatizations of two telecom entities have been delayed to next fiscal 
year. Further, inflexible labor laws, particularly with regard to 
collective bargaining, impede competitiveness gains and discourage 
investors.
4. Debt Management Policies
    At the end of 2000, the SARB reported that total foreign (public 
and private) debt amounted to approximately $36.9 billion, down from 
$38.9 billion in 1999. The ratio of total foreign debt to GDP has 
remained steady at around 26 to 30 percent over the past three years, 
while interest payments as a percentage of total export earnings have 
decrease from 8.6 percent in 1999 to 6.2 percent in 2000.
    The government primarily finances its debt through the issuance of 
government bonds. To a lesser extent, the government has opted to 
finance some short-term debt obligations through the sale of foreign 
exchange and gold reserves. As a corollary to its restrictive financial 
policies, the government has not opted to finance deficit spending 
through loans from commercial banks. South Africa's liquid and 
sophisticated domestic capital market helped the country to cope 
relatively well with the 1998 global financial market crisis. The 
country did not require an IMF program and could easily afford not to 
borrow from international markets. Domestic debt, of which the bulk is 
medium and longterm, with an average duration of close to five years, 
accounts for over 90 percent of the national government's total debt 
portfolio. Foreign debt, almost entirely capital market debt, accounts 
for only six to seven percent of the portfolio and is mainly 
denominated in U.S. dollars, euros, and Japanese yen.
    In February 2001, the government announced that as part of a more 
active debt management policy, a program of debt consolidation was 
underway, a new long-dated inflation linked bond will be issued, and a 
bondstripping facility introduced. After extraordinary receipts and 
payments, the Net Borrowing Requirement (NBR) for 2000/01 came to R16.8 
billion ($2.4 billion).
    The SARB has made strong progress on reducing the liability of its 
net open forward position (NOFP). At end 2000 the NOFP stood at $9.5 
billion. Currently, it is $4.8 billion, which is roughly 64 percent of 
reserves.
5. Significant Barriers to U.S. Exports
    South Africa is a member of the WTO. The government remains 
committed to the simplification and reduction of tariffs within the WTO 
framework, and maintains active discussions in trade organizations. 
Ninety-eight percent of South Africa's tariff lines are now bound. The 
number of antidumping petitions filed in South Africa, however, remains 
high. In a December 2000 ruling, the BTT reaffirmed the dumping duties 
on chicken pieces imported from the United States.
    In September 1996, DTI introduced an Industrial Participation (IP) 
program. Under the program, all government and parastatal purchases or 
lease contracts (goods, equipment or services) with an imported content 
equal to or exceeding $10 million (or the Rand equivalent thereof) are 
subject to an IP obligation. This obligation requires the seller/
supplier to engage in commercial or industrial activity equaling or 
exceeding 30 percent of the imported content of total goods purchased 
under government tender. The Industrial Participation obligation must 
be fulfilled within seven years of the effective date of the IP 
agreement.
    Government purchases are by competitive tender for project, supply 
and other contracts. Foreign firms can bid through a local agent, who 
will then be so examined. The government, however, utilizes its 
position of both buyer and seller to promote the economic empowerment 
of historically disadvantaged groups through the Black Economic 
Empowerment (BEE) program.
    Regulations also set a legal framework and formula for allowing 
preference points to HDIs when tendering for a Government Procurement 
contract. Points are awarded based on such criteria as a percentage of 
HDI ownership and the percentage of HDI managers. Many U.S. companies 
operating in South Africa already have significant programs that 
support and empower HDIs and could therefore fare well in this system. 
However, the concern was never the point system but the possibility 
that HDI equity ownership is interpreted as a mandatory part of the 
system. This could have negative implications for multinational 
corporations (MNCs) because many MNC boards of directors may be 
unwilling to give away corporate equity solely for the purpose of doing 
business with the South African Government.
    The Telecommunications Act of 1996 (TCA) gave the 
telecommunications parastatal Telkom a monopoly over the provision of 
voice communication lines and the direct sale of infrastructure 
(including ``last mile'' services) to end users. The TCA also provided 
the Minister of Communications sole authority to set communications 
policy and to issue licenses. The industry regulator, the Independent 
Communications Authority of SA (ICASA) has a mandate to interpret the 
TCA, to issue regulations, and to recommend licensees. Frequently there 
is conflict between the Ministry, Telkom, and commercial 
telecommunications providers. ICASA was unable to resolve the dispute 
between Value Added Network Services (VANS) providers and Telkom for 
over three years. One of the VANS providers, AT&T, has complained to 
the U.S. Trade Representative (USTR) that the government was not living 
up to its WTO commitments by allowing Telkom to refuse service to VANS 
providers whom Telkom claimed were reselling capacity. ICASA has 
solicited input from the business community during the past year to 
assist in compiling new regulations covering VANS. As of June 2001, the 
Department of Communications has yet to issue final policy directives 
clarifying its stance on VANS and other telecommunications issues.
6. Export Subsidies Policies
    Almost all export subsidies have been discontinued. The DTI has 
moved away from these policies to supply-side measures. One of the new 
programs, the Export Marketing Assistance Scheme (EMA), offers 
financial assistance for the development of new export markets, through 
financing trade missions and market research. The total amount allowed 
to the DTI for exporter assistance for 1999/2000 was less than $15 
million compared to exporter assistance of $150 million in 1997/98.
    DTI's division know as Trade and Investment South Africa (TISA) has 
a section dealing with trade facilitation by providing assistance to 
export development projects. It is also responsible for the provision 
of interest subsidies on medium and long term. The subsidies are based 
on the rate differential between South African and international 
lending rates. The subprogram also provides assistance to the 
Reinsurance Fund for Export Credit and Foreign Investment. A new 
government owned Export Credit Agency was established during 2001. 
Provisions of the Income Tax Act also permit accelerated write-offs of 
certain buildings and machinery associated with beneficiation processes 
carried on for export, and deductions for the use of an export agent 
outside South Africa.
7. Protection of U.S. Intellectual Property
    While South African IPR laws and regulations are largely TRIPS-
compliant, there is continuing concern about copyright piracy and 
trademark counterfeiting. The U.S. copyright industry estimates that 
trade losses due to the piracy of copyrighted works continue to 
increase. The U.S. and South African governments have held extensive 
consultations to clarify a section of the South African Medicines Act, 
which appeared to grant the Minister of Health broad powers in regard 
to patents on pharmaceuticals. The governments reached an understanding 
that any action taken by the South African government will be compliant 
with TRIPS. A similar understanding was then reached between the 
pharmaceutical companies and the South African Government. Draft 
regulations to implement the agreement have been published during 2001 
and discussions with interested parties are continuing.
    Intellectual property rights (IPR) are protected under a variety of 
laws and regulations. Patents may be registered under the Patents Act 
of 1978 and are granted for twenty years. Trademarks can be registered 
under the Trademarks Act of 1993, are granted for ten years, and may be 
renewed for an additional ten years. New designs may be registered 
under the Designs Act of 1967, which grants copyrights for five years. 
Literary, musical and artistic works, cinematography films, and sound 
recordings are eligible for copyrights under the Copyright Act of 1978. 
This act is based on the provisions of the Berne Convention as modified 
in Paris in 1971 and amended in 1992 to include computer software. The 
Department of Trade and Industry (DTI) administers these acts.
    South Africa is a member of the Paris Union and acceded to the 
Stockholm text of the Paris Convention for the Protection of 
Intellectual Property. South Africa is also a member of the World 
Intellectual Property Organization (WIPO). The SAG passed two IPR-
related bills in Parliament at the end of 1997, the Counterfeit Goods 
Act and the Intellectual Property Laws Amendment Bills, thereby 
enhancing its IPR protection. The Counterfeit Goods Act provides for 
criminal prosecution of persons trading in counterfeit or pirated goods 
and establishes a special antipiracy unit. However, enforcement of 
these laws by the National Inspectorate has only recently begun in 
earnest. At the beginning of November 2000, 20 inspectors were 
appointed and trained. A number of warehouse facilities designated as 
counterfeit goods depots were appointed on a self-funding basis during 
the latter part of 2000. During 2001, the DTI put out a tender for the 
disposal of seized counterfeit goods in state warehouses.
8. Worker Rights
    a. The Right of Association: Freedom of association is guaranteed 
by the constitution and given statutory effect by the Labor Relations 
Act (LRA). All workers in the private sector and most in the public are 
entitled to join a union. Moreover, no employee can be fired or 
prejudiced because of membership in or advocacy of a trade union. 
Unions in South Africa have an approximate membership of 3.3 million or 
31 percent of those employed in the wage economy. The right to strike 
is guaranteed in the constitution, and is given statutory effect by the 
LRA. The International Labor Organization (ILO) readmitted South Africa 
in 1994. There is no government restriction against union affiliation 
with regional or international labor organizations.
    b. The Right to Organize and Bargain Collectively: South African 
law defines and protects the rights to organize and bargain 
collectively. The government does not interfere with union organizing 
and generally has not interfered in the collective bargaining process. 
The new LRA statutorily entrenches ``organizational rights,'' such as 
trade union access to work sites, deductions for trade union 
subscriptions, and leave for trade union officials.
    c. Prohibition of Forced or Compulsory Labor: Forced labor is 
illegal under the constitution. There are reports, however, that women 
and children have been forced into prostitution.
    d. Minimum Age for Employment of Children: South African law 
prohibits employment of minors under age 15. Nor may children between 
ages 15 and 18 work if such employment ``places at risk the child's 
wellbeing, education, physical or mental health, or spiritual, moral or 
social development.'' Child labor is nevertheless prevalent in the 
rural areas of the former "homelands" and in the informal sector.
    e. Acceptable Conditions of Work: There is no legally mandated 
national minimum wage in South Africa. Instead, the LRA provides a 
mechanism for negotiations between labor and management to set minimum 
wage standards industry by industry. In those sectors of the economy 
not sufficiently organized to engage in the collective bargaining 
processes which establish minimum wages, the Basic Conditions of 
Employment Act, which went into effect in December 1998, gives the 
Minister of Labor authority to set wages, including for the first time 
wages for farm and domestic workers. Occupational health and safety 
issues remain a top priority of trade unions, especially in the mining, 
construction and heavy manufacturing industries which are still 
considered hazardous by international standards.
    f. Worker Rights in Sectors with U.S. Investment: The worker rights 
conditions described above do not differ from those found in sectors 
with U.S. capital investment.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  6
Total Manufacturing.........  ...........  947
  Food & Kindred Products...  142          .............................
  Chemicals & Allied          205          .............................
   Products.
  Primary & Fabricated        (\1\)        .............................
   Metals.
  Industrial Machinery and    89           .............................
   Equipment.
  Electric & Electronic       71           .............................
   Equipment.
  Transportation Equipment..  141          .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  166
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  (\1\)
 Estate.
Services....................  ...........  118
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  2,826
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                       EAST ASIA AND THE PACIFIC

                              ----------                              


                               AUSTRALIA

                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\......................     392.7      377.8      338.4
  Real GDP Growth (pct)................       4.2        1.5        2.5
  GDP by Sector: \4\
    Agriculture........................      12.8       10.8        9.6
    Manufacturing......................      47.7       43.2       38.7
    Services...........................     280.2      281.8      252.5
    Government.........................      14.6       14.1       12.6
  Per Capita GDP (US$).................    21,800     19,900     16,900
  Labor Force (000s)...................     9,470      9,700      9,800
  Unemployment Rate (pct)..............       7.0        6.3        6.9
 
Money and Prices (annual percentage
 growth):
  Money Supply (M3)....................      10.1        4.5       10.6
  Consumer Price Inflation.............       1.8        5.8        4.0
  Exchange Rate (Aust$/US$--annual           1.56       1.74       1.99
   average) \2\ .......................
 
Balance of Payments and Trade:
  Total Exports FOB....................      55.7       63.6       62.9
    Exports to United States...........       5.4        6.3        5.8
  Total Imports CIF....................      65.1       67.4       65.4
    Imports from United States.........      13.6       13.3       12.6
  Trade Balance........................      -9.4       -9.3       -3.5
    Balance with United States.........      -8.1       -7.0       -6.8
  External Public Debt.................      24.0       12.2        7.6
  Fiscal Surplus/GDP (pct).............       0.7        7.0        0.3
  Current Account Deficit/GDP (pct)....       5.8        4.0        3.5
  Debt Service Payments/GDP............       1.7        2.0        1.6
  Gold and Foreign Exchange Reserves...      22.0       18.8       19.0
  Aid from United States...............         0          0          0
  Aid from All Other Sources...........         0          0          0
------------------------------------------------------------------------
\1\ 2001 figures are estimates based on available monthly data in
  October.
\2\ Exchange rate fluctuations must be considered when analyzing data.
  Percentage changes calculated in Australian dollars.
\3\ Income measure of GDP.
\4\ Production measure of GDP. ``Manufacturing'' includes manufacturing,
  mining, utilities, and construction.


1. General Policy Framework
    Australia's developed market economy is dominated by its services 
sector (65 percent of GDP), yet it is the agricultural and mining 
sectors (7 percent of GDP combined) that account for the bulk (55-60 
percent) of Australia's goods and services exports. Australia's 
comparative advantage in primary products is a reflection of the 
natural wealth of the Australian continent and its small domestic 
market; 20 million people occupy a continent the size of the contiguous 
United States. The relative size of the manufacturing sector has been 
declining for several decades, and now accounts for just under 12 
percent of GDP.
    Australia was one of the OECD's fastest-growing economies 
throughout the 1990s, and, after a short downturn in late-2000, 
continues to grow faster than the OECD average. The resultant 
improvement in the labor market has seen unemployment fall below seven 
percent for the first time in a decade, with little hint of wage 
inflation. Price inflation, however, remains above average (around five 
percent p.a.) following the July 2000 introduction of a broad-based 10 
percent consumption tax and the continued depreciation of the 
Australian dollar. Cuts by the Reserve Bank of Australia (RBA) to 
official interest rates (150 basis points over 2000), while bolstering 
economic growth, will probably prevent the inflation rate returning to 
its long-term trend level (around two-three percent p.a.) until well 
into 2002.
    The Liberal/National coalition government continued its program of 
fiscal consolidation and debt reduction in its budget for the 2001-2002 
fiscal year, announcing a planned budget surplus of $0.8 billion.
2. Exchange Rate Policies
    Australian dollar exchange rates are determined by international 
currency markets. There is no official policy to defend any particular 
exchange rate level, although the RBA does operate in currency markets. 
The RBA is active in what it describes as ``smoothing and testing'' 
foreign exchange rates, in order to provide a generally stable 
environment for fundamental economic adjustment policies.
    Australia does not have any major foreign exchange controls beyond 
requiring RBA approval if more than A$5,000 in cash is to be taken out 
of Australia at any one time, or A$50,000 in any form in one year. The 
purpose of this regulation is to prevent tax evasion and money 
laundering; authorization is usually automatic.
3. Structural Policies
    The government is continuing a program of economic reform, begun in 
the 1980s, that includes the reduction of import protection and 
microeconomic reform. Initially broad in scope, the program now focuses 
on industry-by-industry changes and reform of the labor market. The 
government is also continuing with the privatization of public assets. 
Federal Government ownership in telecommunications carrier Telstra has 
been reduced (via two public floats) to 51 percent. It is now in the 
process of selling the remaining federally-owned airports around 
Sydney.
    The General Tariff Reduction Program, begun in March 1991, has 
reached its conclusion, with most existing tariffs now at five percent 
or below. However, the passenger motor vehicles and textiles, clothing 
and footwear industries are still protected by high tariffs (15 and 25 
percent respectively) where they will remain, pending further review, 
until 2005.
    July 2000 saw the introduction of the Goods and Services Tax (GST), 
accompanied by significant cuts to personal income taxes. The GST is a 
broad-based consumption tax levied at 10 percent (exempting only basic 
food, education, health, and charities) and replaces the Wholesale 
Sales Tax and several other minor excises and taxes.
4. Debt Management Policies
    Australia's net foreign debt has averaged between 30 and 45 percent 
of GDP for the past decade, and in mid-2001 totaled $160 billion (48 
percent of GDP). Australia's net external public debt is $7 billion, or 
around two percent of GDP. The Federal Government is using its 
privatization receipts and budget surpluses to further reduce its debt 
obligations. The net debt-service ratio (the ratio of net income 
payable to export earnings) has remained at or below 10 percent since 
1997, down from 21 percent in 1990.
5. Significant Barriers to U.S. Exports
    Australia is a signatory to the WTO, but is not a member of the 
plurilateral WTO Agreement on Government Procurement.
    Services Barriers: The Australian services market is generally 
open, and many U.S. financial services, legal and travel firms are 
established there. The banking sector was liberalized in 1992, allowing 
foreign banks to be licensed as either branches or subsidiaries. 
Broadcast licensing rules were eased in 1992, allowing up to 20 percent 
of the time used for paid advertisements to be filled with foreign-
sourced material.
    Local content regulations also require that 55 percent of a 
commercial television stations' weekly broadcasts between the hours of 
6:00 a.m. and midnight must be dedicated to Australian-produced 
programs. (The United States regrets that this requirement was recently 
increased from 50 percent.) Regulations governing Australia's pay-TV 
industry require that channels carrying drama must devote 10 percent of 
their annual program budget to new Australian-produced content.
    Labeling: Various federal and state labeling requirements are being 
reconsidered in light of compliance with GATT obligations, utility and 
effect on trade. A new mandatory standard for foods produced using 
biotechnology came into effect in May 1999. The standard prohibits the 
sale of food produced using gene technology, unless the food has been 
assessed by the Australia New Zealand Food Authority (ANZFA) and listed 
in the standard. The Australia New Zealand Food Standards Council has 
directed ANZFA to require labeling for virtually all foods produced 
using biotechnology, with labeling of affected products to become 
mandatory on 7 December 2001.
    Commodity Boards: The export of almost all wheat, rice, and sugar 
remains under the exclusive control of commodity boards. The 
privatization of the Australian Wheat Board (AWB) in July 1999 saw its 
export controls transferred to the Wheat Export Authority (WEA), with 
veto rights over bulk export requests retained by the grower-owned 
former subsidiary of the AWB, AWB (International) Ltd. After review 
during 2000, the Federal government extended the WEA's export monopoly 
until 2004. Having terminated export support payment schemes and 
internal support programs for dairy producers, the Australian 
government has made a structural adjustment package available to dairy 
producers since June 2000.
    Sanitary and Phytosanitary Restrictions: Australia's geographic 
isolation has allowed it to remain relatively free of exotic diseases. 
Australia imposes extremely stringent animal and plant quarantine 
restrictions, in a number of instances without the WTO-required 
science-based justification. The WTO SPS agreement requires, among 
other things, that Australia's restrictions undergo a risk assessment 
to ensure that any restrictions are science-based, rather than 
disguised non-tariff barriers. Concerns remain with Australia's 
restrictions on California table grapes, Florida citrus, stone fruit, 
chicken (fresh, cooked, and frozen), pork, apples, and corn.
    Investment: The government requires notification of investment 
proposals by foreign interests above certain notification thresholds, 
including: acquisitions of substantial interests, 15 percent by a 
single foreigner and 40 percent in aggregate, in existing Australian 
businesses with total assets over A$50 million; plans to establish new 
businesses involving a total investment of over A$10 million or more 
and takeovers of offshore companies whose Australian subsidiaries are 
valued at A$50 million or more, or account for more than 50 percent of 
the target company's global assets; and, direct investments by foreign 
governments or their agencies, irrespective of size. Investment 
proposals for entities involving more than A$50 million in total assets 
are approved unless found contrary to the national interest. Special 
regulations apply to investments in the media sector, urban real estate 
or land, and civil aviation.
    Divestment cannot be forced without due process of law. There is no 
record of forced divestment outside that stemming from investments or 
mergers that tend to create market dominance, contravene laws on equity 
participation, or result from unfulfilled contractual obligations.
    Government Procurement: Since 1991, foreign IT companies with 
annual sales to the Government of Australia of more than A$40 million 
have been expected to enter into the Partnerships for Development (PFD) 
scheme. Under a PFD, the headquarters of the foreign firm agrees: to 
invest five percent of its annual local turnover on research and 
development in Australia; to export goods and services worth 50 percent 
of imports for hardware companies or 20 percent of turnover for 
software companies; and to achieve 70 percent local content across all 
exports within the seven-year life of the PFD.
    Recent changes to Australian Government procurement policies have 
seen a significant decentralization of purchasing procedures, with the 
introduction of Endorsed Supplier Arrangements (ESA). Companies wishing 
to supply information technology (IT) products and major office 
machines to the Australian government must gain endorsement under the 
ESA. The industry development component of the new ESA requires 
evidence of product development, investment in capital equipment, 
skills development and service support, and souring services and 
product components, parts and/or input locally. In addition, applicants 
must demonstrate performance in either exports, research and 
development, development of strategic relationships with Australian or 
New Zealand suppliers/customers, or participation in a recognized 
industry development program.
    On 1 June 2001, the Government of Australia released a discussion 
paper on the Strategic Industry Development Agreement Program, to 
replace the PFD scheme at some point in the second half of 2001. The 
proposed framework requires all companies wishing to supply Information 
and Communication Technology (ICT) products and services to the 
Government of Australia (including subcontractors and resellers) to be 
endorsed under the Endorsed Supplier Arrangement. Companies supplying 
more than A$10 million in ICT goods and services will be required to 
commit to industry development activities, such as research and 
development, export and value-added manufacturing initiatives, and 
technology transfer.
6. Export Subsidies Policies
    Australia is a member of the WTO Agreement on Subsidies and 
Countervailing Measures.
    The coalition government has severely curtailed assistance schemes 
to Australian industry as part of its fiscal consolidation program. 
Under the Export Market Development Grants Scheme, the government gives 
grants to qualifying firms of up to A$200,000 to assist in offsetting 
marketing costs incurred when establishing new export markets.
7. Protection of U.S. Intellectual Property
    Australia is a member of the World Intellectual Property 
Organization (WIPO), and most multilateral IPR agreements, including: 
the Paris Convention for the Protection of Industrial Property; the 
Berne Convention for the Protection of Literary and Artistic Works; the 
Universal Copyright Convention; the Geneva Phonogram Convention; the 
Rome Convention for the Protection of Performers, Producers of 
Phonograms, and Broadcasting Organizations; and the Patent Cooperation 
Treaty. In August 2000, Australia took final action to implement the 
1996 WIPO Copyright and World Performances and Phonograms Treaties. The 
United States is concerned over Australia's removal of restrictions on 
parallel imports, copyright piracy issues and with Australia's 
limitations on its protection of test data for certain chemical 
entities.
    Australia has allowed the parallel importation of sound recordings 
since 1998, and of branded goods (e.g. clothing, footwear, toys, and 
packaged food) since 2000. During July 2000, the Cabinet approved a 
proposal to remove the restriction on parallel imports for books and 
computer software. Although passed by the House in June 2001, the 
legislation is unlikely to be approved by the Senate in 2001.
    During December 2000, the Australian House of Representatives' 
Standing Committee on Legal and Constitutional Affairs released its 
report entitled ``Cracking down on copycats: enforcement of copyright 
in Australia.'' The Committee concluded that even though the level of 
copyright infringement in Australia is low by international standards, 
it does impose a significant and costly burden to many Australian 
industries that rely on creative endeavor. The Committee recommended 
amendments be made to the Copyright Act to make it easier for copyright 
holders to defend their rights in civil actions and to increase the 
criminal penalties for commercial infringement. It is unlikely these 
recommendations will be enacted in any form during 2001.
    In August 1999, the Australian Parliament enacted legislation 
permitting limited software recompilation. The impact of this 
legislation remains unclear; the U.S. government continues to monitor 
the potentially serious impact of software decompilation.
    Patents: Patents are available for inventions in all fields of 
technology, except for human beings and biological processes relating 
to artificial human reproduction. They are protected by the Patents Act 
(1990), which offers coverage for 20 years subject to renewal. Trade 
secrets are protected by common law, such as by contract. Design 
features can be protected from imitation by registration under the 
Designs Act for up to 16 years upon application.
    Test Data: In 1999, the government passed legislation providing 
five years of protection of test data for the evaluation of a new 
active constituent for agricultural and veterinary chemical products. 
No protection is provided for data submitted in regard to new uses and 
formulations.
    Trademarks: Australia provides Trade-Related Aspects of 
Intellectual Property Rights (TRIPs) compatible protection for both 
registered and unregistered well known trademarks under the Trademark 
Act of 1995. The term of registration is ten years.
8. Worker Rights
    a. The Right of Association: Workers in Australia fully enjoy and 
practice the rights to associate, to organize, and to bargain 
collectively. In general, industrial disputes are resolved either 
through direct employer-union negotiations or under the auspices of the 
various state and federal industrial relations' commissions. Australia 
has ratified most major international labor organization conventions 
regarding worker rights.
    b. The Right to Organize and Bargain Collectively: Approximately 26 
percent of the Australian workforce belongs to unions. The industrial 
relations system operates through independent federal and state 
tribunals; unions are currently fully integrated into that process. 
Legislation reducing the powers of unions to represent employees and of 
the Industrial Relations Commission to arbitrate settlements was passed 
by Federal Parliament in November 1996. Further changes in industrial 
relations are under consideration in draft legislation currently before 
Parliament.
    c. Prohibition of Forced or Compulsory Labor: Compulsory and forced 
labor are prohibited by conventions that Australia has ratified, and 
are not practiced in Australia.
    d. Minimum Age for Employment of Children: The minimum age for the 
employment of children varies in Australia according to industry 
apprenticeship programs, but the enforced requirement in every state 
that children attend school until age 15 or 16 maintains an effective 
floor on the age at which children may be employed full time.
    e. Acceptable Conditions of Work: There is no legislatively-
determined minimum wage. An administratively-determined minimum wage 
exists, but is now largely outmoded, although some minimum wage clauses 
still remain in several federal awards and some state awards. Instead, 
various minimum wages in individual industries are specified in 
industry ``awards'' approved by state or federal tribunals. Workers in 
Australian industries generally enjoy hours, conditions, wages, and 
health and safety standards that are among the best and highest in the 
world.
    f. Rights in Sectors with U.S. Investment: Most of Australia's 
industrial sectors enjoy some U.S. investment. Worker rights in all 
sectors are identical in law and practice and do not differentiate 
between domestic and foreign ownership.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  6,992
Total Manufacturing.........  ...........  7,964
  Food & Kindred Products...  1,197        .............................
  Chemicals & Allied          2,624        .............................
   Products.
  Primary & Fabricated        472          .............................
   Metals.
  Industrial Machinery and    705          .............................
   Equipment.
  Electric & Electronic       159          .............................
   Equipment.
  Transportation Equipment..  1,446        .............................
  Other Manufacturing.......  1,360        .............................
Wholesale Trade.............  ...........  2,627
Banking.....................  ...........  2,627
Finance/Insurance/Real        ...........  8,145
 Estate.
Services....................  ...........  2,242
Other Industries............  ...........  4,843
    Total All Industries....  ...........  35,324
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 CHINA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000       2001
------------------------------------------------------------------------
Income, Production and Employment \1\
  Nominal GDP \2\......................     986.9    1,077.1    1,160.0
  Real GDP Growth (pct) \3\............       7.1        8.0        7.5
  GDP by Sector: \4\
    Agriculture........................     174.1      171.2      176.0
    Manufacturing......................     486.0      548.0      597.5
    Services...........................     325.7      357.9      386.5
    Government \5\.....................     123.9      141.0        N/A
  Per Capita GDP (US$).................       787        829        892
  Labor Force (millions) \6\...........     711.6      717.8      724.0
  Unemployment Rate (pct) \7\..........       3.1        3.1        3.5
 
Money and Prices (annual growth):
  Money Supply (M2) (pct)..............      15.3       12.3       13.5
  Consumer Price Inflation (pct).......      -1.4        0.4        1.0
  Exchange Rate (RMB/$US avg.).........       8.3        8.3        8.3
 
Balance of Payments and Trade:
  Total Exports (FOB) \8\..............     194.7      249.1      269.2
    Exports to United States (U.S.           81.8      100.0      107.2
     data).............................
    Exports to United States (Chinese        41.9       52.1       55.2
     data).............................
  Total Imports CIF....................     158.7      214.7      241.3
    Imports from United States FAS           13.1       16.2       19.5
     (U.S. data).......................
    Imports from United States (Chinese      19.5       22.4       26.2
     data).............................
  Current Account Balance..............      15.7       20.5       12.4
    Balance with United States (U.S.         68.7       83.8       87.7
     data).............................
    Balance with United States (Chinese      22.4       29.7       29.0
     data).............................
  External Public Debt \9\.............     151.8      145.7      145.0
  Fiscal Deficit/GDP (pct).............       2.8        2.8        2.7
  Current Account Surplus/GDP (pct)....       3.0        2.2        2.0
  Debt Service Payments/Export (pct)...      11.3        9.2        9.0
  Debt Service Payments/GDP (pct)......       2.2        4.0        3.0
  Gold and Foreign Exchange Reserves...     155.3      166.1      200.6
  Aid from United States...............         0          0          0
  Aid from Other Sources...............       0.6        0.6        0.6
------------------------------------------------------------------------
\1\ All income and production figures are converted into dollars at the
  exchange rate of RMB 8.3 = $US 1.00. Figures are in $US billions
  unless otherwise stated.
\2\ GDP figures for year 2001 are estimates based on data available in
  October 2001.
\3\ Official growth rate published by State Statistical Bureau based on
  constant renminbi (RMB) prices using 1978 weights.
\4\ Production and net exports are calculated using different accounting
  methods and do not tally to total GDP. Agriculture includes forestry
  and fishing; manufacturing includes mining.
\5\ Available Chinese GDP data do not disaggregate services provided by
  the government from overall services. Estimates for government
  contribution to GDP provided in the table have been calculated on an
  expenditure basis. They are not components of the aggregate or
  sectoral GDP figures, calculated on a production basis, given above.
  As GDP calculated on an expenditure basis differs only slightly from
  that using production figures, the figures do give a reasonable
  approximation to the contribution of government spending to the
  economy.
\6\ ``Economically active population'' as presented in the China
  Statistical Yearbook (2001). Both 2000 and 2001 are Embassy estimates.
\7\ ``Official'' urban unemployment rate for China's approximately 200
  million urban workers; agricultural laborers are assumed to be totally
  employed in China's official labor data. Many economists believe the
  real rate of urban unemployment is much higher.
\8\ IMF for PRC global trade data; IMF estimates for full-year 2001
  global trade; U.S. Department of Commerce for U.S.-China bilateral
  trade data; PRC Customs for U.S.-China bilateral trade data; Embassy
  estimate for full-year 2001 bilateral trade.
\9\ Includes loans from foreign government, loans from international
  financial institutions, international commercial loans, and other
  unspecified international liabilities.
 
Sources: China Statistical Yearbook (2000, 2001); China Statistical
  Abstract (2001), People's Bank of China Quarterly Statistical
  Bulletin; U.S. Department of Commerce Trade Data; Asian Development
  Bank; Embassy estimates.


1. General Policy Framework
    For two decades, China has pursued policies designed to achieve 
rapid growth and higher living standards. During this period, China has 
made a gradual transformation from a centrally planned, socialist 
economy toward a more marketbased economy. Though stateowned industry 
remains dominant in key sectors, the government has ``privatized'' many 
small and medium stateowned enterprises (SOEs) and has allowed the non-
state sector, including private entrepreneurs, increased scope for 
economic activity. The International Monetary Fund (IMF) estimates that 
the nonstate sector accounts for three-fourths of industrial output, 50 
to 60 percent of Gross Domestic Product (GDP), and about 60 percent of 
nonagricultural employment.
    Most analysts expect China's GDP growth to be between seven and 
eight percent in 2001, slightly slower than the eight percent rate 
recorded in 2000. Increased domestic demand, fueled in large part by 
government-directed fixed-asset investment, played the key role in 
generating gross domestic product growth. Fixed-asset investment rose 
over 15 percent year-on-year during the first half of 2001, and the 
government's target was 10 percent for the full year. Exports, which 
made a strong contribution to output in 2000, grew only 7.3 percent 
year-on-year through August 2001, a decline of over 20 percentage 
points from the growth rate recorded for the full year 2000. In 
addition, supply of many industrial and consumer products in the 
domestic market continued to exceed demand. As a result, prices for 
those commodities continued to fall, although higher prices for 
services and some food products led to an increase of about one percent 
in the overall consumer price index.
    The Chinese government has used deficitfinanced fiscal stimulus to 
encourage domestic economic expansion since 1998. This program has 
contributed an estimated 1.52.0 percentage points to GDP annually. In 
2001, the Chinese government planned to issue ``special construction 
bonds'' worth the equivalent of about $US 18 billion to provide partial 
funding for projects designed to promote economic growth. The 
government issued roughly $US 43 billion in similar bonds from 1998 to 
2000. As of the end of 2001, the total value of these projects was 
approximately $US 290 billion. Because the yield on government bonds 
exceeded that of Chinese currency bank deposits, authorities have faced 
no difficulties in financing either the government deficit of about $US 
31 billion or its fiscal stimulus program through increased domestic 
issuance of government debt. At the end of 2000, the balance of China's 
national debt equaled approximately 15 percent of gross domestic 
product.
    The Chinese government recognizes, however, that major structural 
reform is needed in three related areas: the inefficient state-owned 
industrial sector, the financial system, and the social safety net. The 
earnings of state-owned enterprises (SOEs) rose in 2001, although the 
bulk of profits were concentrated in a handful of industries such as 
petroleum (helped by high world oil prices) and electric power (where 
government price controls ensure strong earnings). The large stock of 
nonperforming loans poses a critical obstacle to financial reform. 
Short-term bank loans primarily to (often unprofitable) SOEs accounted 
for about 60 percent of total outstanding lending in 2001, and 
government controls over interest rates as well as policy directives 
channeling bank credit to preferred industries and enterprises remained 
in effect. Outside observers estimate non-performing debt to be 30-50 
percent of outstanding loans--even after the transfer in 1999 of the 
equivalent of nearly $US 170 billion in non-performing loans to four 
state-owned asset management companies (AMCs). As of the end of June 
2001, the AMCs had ``disposed of'' the equivalent of almost $US 33 
billion in non-performing loans with a recovery rate of around 50 
percent of asset value. Stock and bond markets remained immature and 
highly sensitive to government policy changes or insider manipulation. 
Reform of the financial system will help allocate more efficiently 
China's huge pool of domestic savings and fund creation of pension, 
unemployment, and health care systems.
    China enjoys large inflows of foreign capital. Lured by a market 
with over one billion potential consumers, foreign companies have made 
China one of the world's largest destinations for foreign direct 
investment (FDI). Realized foreign direct investment reached $US 27 
billion by the end of August 2001, a 20 percent increase over the same 
period of the previous year.
2. Exchange Rate Policies
    Foreigninvested enterprises (FIEs) and authorized Chinese firms 
have generally enjoyed liberal access to foreign exchange for 
traderelated and approved investment related transactions. FIEs may set 
up foreign currency deposits for trade and remittances. Since 1997, 
Chinese firms earning more than $US 10 million a year in foreign 
currency have been allowed to retain in foreign currency up to 15 
percent of their receipts. The Asia-wide economic slowdown and growing 
evidence of unauthorized capital outflows prompted the government to 
tighten documentation requirements in mid1998. U.S. firms reported that 
the extra delays caused by these measures had for the most part ended 
by mid1999. China introduced currency convertibility for current 
account, trade and transactions in December 1996 (in accordance with 
the IMF charter's Article VIII provisions). Capital account 
liberalization has been postponed indefinitely.
    Chinese authorities describe the exchange rate as a ``managed 
float.'' For the past three years, it has behaved like a rate pegged to 
the dollar, with a trading range of 0.3 percent; since 1996 the 
renminbi (RMB) has traded consistently at about RMB 8.3 per dollar. 
China uses the RMB/dollar exchange rate as the basic rate and sets 
cross rates against other currencies by referring to international 
markets. In September 2000, the Chinese authorities lifted interest 
rate controls on all foreign currency loans and on foreign currency 
deposits in excess of $US 3 million. A newly established association of 
Chinese banks, moreover, was granted the authority to set interest 
rates on foreign currency deposits under the $US 3 million level. 
Interest rates on foreign currency deposits have declined since the 
beginning of 2001 to match the low rates on domestic currency savings. 
Nevertheless, China's closed capital account means that ``black 
market'' trading continues to be a regular feature, albeit small, of 
the Chinese system. Forward rates are available in the small, offshore 
market.
3. Structural Policies
            Price Controls
    The Chinese government, as part of its comprehensive reform of the 
economy, is committed to gradually phasing out remaining price 
controls. As of mid-2001, only thirteen categories of goods remained 
subject to price controls, down from 141 in 1992. The government 
nevertheless continues to apply direct price controls over commodities 
deemed strategically important such as petroleum and to influence the 
prices for sensitive goods such as grain. To curb surplus production in 
2000, the government allowed grain and cotton prices to fall by more 
than 20 percent, bringing domestic prices closer to international 
levels. China also maintains discriminatory pricing practices with 
respect to some services and inputs offered to foreign investors in 
China. China agreed to eliminate these practices when it became a 
member of the World Trade Organization (WTO). On the other hand, 
foreign investors benefit from investment incentives, such as tax 
holidays and grace periods, which allow them to reduce substantially 
their tax burden.
            Taxation
    China's accession to the WTO will accelerate the phaseout of tax 
preferences for foreign-invested enterprises. Domestic enterprises have 
long resented rebates and other tax benefits enjoyed by foreigninvested 
firms. The move toward national treatment will mean the gradual 
elimination of special tax breaks enjoyed by many foreign investors. In 
addition, more sophisticated collection methods should help reduce 
loopholes for all market participants. The National People's Congress 
(China's national legislature) passed a series of amendments to the 
country's tax collection law in April 2001 designed to make the tax 
code more standardized and transparent. Although State Administration 
of Taxation officials plan eventually to phase out rebates of Value-
Added Tax payments for selected exports as a way to increase tax 
revenues, the authorities are likely to keep this measure in place at 
least through 2002 to spur exports.
            Regulatory Environment
    Many of the most significant barriers to trade and investment in 
China are not the result of explicit laws or regulations aimed at 
keeping out foreign products or capital. Rather, they are systemic 
problems that stem from a bloated, secretive, and interventionist 
bureaucracy inherited from the past. China has committed to address 
many of these problems when it joins the WTO (in December 2001) through 
increased transparency, notice and comment procedures for new laws and 
regulations, and the availability of judicial review of administrative 
actions. At present, however, Chinese ministries routinely implement 
policies based on internal ``guidance'' or ``opinions'' that are not 
available to new market entrants. Authorities usually are unwilling to 
consult with Chinese and foreign industry representatives before new 
regulations are implemented. Likewise, the lack of a clear and 
consistent framework of laws and regulations is an effective barrier to 
the participation of foreign firms in the domestic market. Even in 
areas where the law is clear, government bureaucracies often 
``selectively apply'' regulations; China has many rules on the books 
that are ignored in practice until a person or entity falls out of 
official favor. Official corruption, particularly at provincial and 
local levels, is acknowledged to be a serious problem in China, as 
demonstrated by a series of recent crackdowns.
4. Debt Management Policies
    At the end of 2000, China's external debt stood at just under $US 
146 billion, according to official Chinese data. Long-term lending made 
up over 90 percent of the outstanding balance. Given China's relatively 
strong export performance, investment inflows, and large foreign 
exchange reserves (over $US 190 billion at the end of August 2001), 
China can easily service its foreign debt obligations.
5. Significant Barriers to U.S. Exports
    China's impending accession to the WTO would oblige it to address 
comprehensively many trade-distorting practices that limit the access 
of foreign firms to China's market. In preparation for accession, the 
Chinese government has undertaken a massive effort to revise its laws 
and regulations to bring them into compliance with WTO rules. China's 
2001-2005 Tenth Five-year Plan calls for an improved legal and 
regulatory framework and increased transparency. Meanwhile, in an 
effort to cope with a slowing economy and relatively weak external 
demand, China continued its reform efforts in 2000 and 2001. Some of 
the policies adopted have improved market access for U.S. goods and 
services. For example, a huge expansion in the number of firms with 
trading rights, reduction in the number of products subject to import 
quotas, and an improved system of distribution rights will all benefit 
foreign firms.
    Despite this progress, China still has substantial barriers. 
Furthermore, while China's trade liberalization efforts represent a 
step forward, China also introduced regulations that erected new or 
worsened existing trade barriers.
    Import licenses: Since the early 1990s, China has eliminated many 
import license requirements, a process that is continuing as 
preparations are made for China's WTO accession. Licenses are still 
required, however, for a number of items important to the United 
States, including grains, vegetable oil, cotton, iron and steel 
products, commercial aircraft, passenger vehicles, hauling trucks, and 
rubber products. China is considering adding more license requirements 
in an effort to combat smuggling of certain agricultural goods. 
Although Chinese regulations state that the issuance of most import 
licenses is ``automatic,'' the license applicant must prove that there 
is ``demand'' for the import and that there is sufficient foreign 
exchange available to pay for the transaction. The issuing entity is 
left with a large degree of discretion. In effect, this allows a local 
official to block license approval without offering an explicit reason. 
However, this system should be changing once China joins the WTO, as it 
has made commitments not to use its import licensing system as a trade 
barrier and to observe the principles of non-discrimination and 
national treatment.
    Services barriers: China's services sector has been one of the most 
heavily regulated and protected parts of the national economy. At 
present, foreign service providers are largely restricted to operations 
under the terms of selective ``experimental'' licenses. Strict 
operational limits on entry and restrictions on the geographic scope of 
activities severely constrain the growth and profitability of these 
operations.
    The commitments included in China's WTO accession agreement would 
provide access of foreign businesses to many services sectors. For 
example, China has committed to gradually phasing out geographical 
restrictions on insurance and banking services. Foreign banks can 
conduct local currency business with Chinese companies two years after 
China's WTO accession (subject to certain geographical restrictions), 
and with Chinese individuals five years after accession; all 
restrictions on foreign banks are to be removed five years after 
China's entry to the WTO. The Chinese have promised upon accession to 
allow foreign firms to distribute and service their own products made 
in China, and provide related services. After a three-year period, 
foreign enterprises will be able to engage in distribution services for 
most products (including providing related services).
    Standards, testing, labeling, and certification: China's testing 
and standards regimes are an area of serious concern for foreign 
producers. It is often difficult to ascertain what inspection 
requirements apply to a particular import, as China's import standards 
are not fully developed and often differ substantially from 
requirements imposed on domestic goods. New requirements are usually 
not released to traders with sufficient advance notice, making it 
difficult to sign long-term contracts and plan production. The United 
States and other countries have complained that safety and inspection 
procedures applied to imports are often more rigorous and expensive 
than those applied to domestic products. Furthermore, standards testing 
and inspection for domestic and imported goods were carried out by 
separate entities until August 2001 when the domestic testing and 
quarantine agencies merged. Of most serious concern, China's standards 
and quarantine requirements may not always be based on internationally 
accepted norms and sound science, resulting in serious burdens for 
foreign suppliers. However, many aspects of China's testing and 
standards regime should be changing when China joins the WTO. China has 
committed to ensure that its testing and standards bodies operate with 
transparency, apply the same technical regulations, standards and 
conformity assessment procedures to both imported and domestic goods, 
and use the same fees, processing periods, and complaint procedures for 
both imported and domestic goods. In addition, China has committed to 
accept the Code of Good Practice within four months after accession, 
and it will speed up its process of reviewing existing technical 
regulations, standards, and conformity assessment procedures and 
harmonizing them with international norms.
    Investment barriers: China has historically attempted to guide new 
foreign investment to ``encouraged'' industries. Over the past five 
years, China has implemented new policies introducing new incentives 
for investments in hightech industries and in China's central and 
western regions. In 2000, China published revised lists of sectors in 
which foreign investment would be encouraged, restricted or prohibited; 
further revisions are expected in 2001. Regulations relating to the 
encouraged sectors were designed to direct FDI to areas in which China 
could benefit from foreign assistance or technology, such as in the 
construction and operation of infrastructure facilities. Policies 
relating to restricted and prohibited sectors were designed to protect 
domestic industries for political, economic, or national security 
reasons. The number of restricted industries (currently including many 
service industries such as banking, insurance, and distribution) should 
decrease as China opens its service sector upon accession to the WTO. 
The production of arms and the mining and processing of certain 
minerals remain prohibited sectors.
    The law governing wholly foreign-owned enterprises (WFOEs) was 
revised in April 2001 to eliminate requirements regarding export 
performance; technology transfer and import substitution; foreign 
exchange balancing; direct domestic sales; and domestic sourcing, 
whenever possible, of raw materials, fuel, capital equipment, and 
technology. Under its accession agreement, China has also agreed not to 
enforce these types of requirements in existing contracts. Also, under 
the revised WFOE law, China may reject a WFOE application for several 
reasons, including nonconformity with the development requirements of 
China's national economy, potentially affording the government leverage 
in ``encouraging'' export performance, technology transfer, and import 
substitution. The law on Sino-foreign joint ventures was revised in 
March 2001 to eliminate a domestic procurement requirement. Chinese 
government agencies have, however, traditionally encouraged enterprises 
under their control to ``buy Chinese.''
    Government procurement practices: Government procurement in China 
has for many years been an opaque process. Foreign suppliers face overt 
and covert discrimination. Even when procurement contracts have been 
open to foreign bidders, such suppliers have often been discouraged 
from bidding by the high price of participation. The Chinese government 
has routinely sought to obtain offsets from foreign bidders in the form 
of local content requirements, technology transfers, investment 
requirements, countertrade, or other concessions. The problem extends 
beyond traditional government procurement to encompass China's many 
``state-controlled'' entities. The State Economic and Trade Commission 
(SETC), in 1999, issued regulations requiring state-owned enterprises 
(SOEs) to purchase all capital equipment from either domestic 
manufacturers or foreign-invested enterprises in China except where the 
equipment is not available domestically. In its accession agreement, 
however, China has agreed that SOEs must make purchases and sales based 
solely on commercial considerations, such as price, quality, 
marketability and availability, and that the government will not 
directly or indirectly influence the commercial decisions of SOEs.
    China has made some efforts to open its government procedures to 
competitive bidding. On January 9, 2001, the Ministry of Finance (MOF) 
issued a document stressing that noncompetitive or protectionist ploys 
are strictly prohibited while selecting a procurement company for a 
loan project. However, as written the provisional procedures offer 
insufficient protection to foreign participants in government 
procurement projects.
    Customs procedures: In August 1998, the Customs Administration 
launched an ambitious program to standardize enforcement of customs 
regulations throughout China as part of a larger campaign to combat 
smuggling. The program was introduced to control and ultimately 
eliminate ``flexible'' application of customs duty rates at the port of 
entry. While foreign businesses selling goods into China at times have 
benefited from lower import duty rates, lack of uniformity made it 
difficult to anticipate in advance what the applied duty would be. The 
scale of the smuggling problem itself is illustrated by the continuing 
prosecution of China's largest ever smuggling case, in which $US 10 
billion in automobiles, oil, and other goods was imported illegally. 
The anti-smuggling campaign has reduced significantly the flexibility 
of the local customs officials to ``negotiate'' duties.
6. Export Subsidies
    China abolished subsidies conditioned directly on export 
performance for most goods on January 1, 1991. Nonetheless, exports of 
agricultural products, particularly corn and cotton, still receive 
direct export subsidies as of 2001. There continue to be reports that 
some manufactured exports benefit from indirect subsidies through 
preferential or below-market rate access to inputs such as energy and 
raw materials. Many state-run companies also enjoy export subsidies 
through loans at preferential rates, forgiven or deferred loans, and 
preferential access to loans from the domestic banking sector. China 
has agreed to stop all export subsidies on agricultural and industrial 
goods as soon as it becomes a WTO member.
7. Protection of Intellectual Property
    China has made progress in protecting intellectual property rights 
(IPR) since it signed IPR agreements with the United States in 1992 and 
1995. It has committed to bringing its IPR laws and regulations into 
full compliance with the WTO agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPS) at the time of its accession to 
WTO. A new Patent Law came into effect on July 1, 2001, and new 
Trademark and Copyright Laws were passed October 27, 2001. China is a 
member of the World Intellectual Property Organization (WIPO) and is a 
signatory to the Paris Convention for the Protection of Intellectual 
Property, the Berne Convention for the Protection of Literary and 
Artistic Works, the Universal Copyright Convention, the Patent 
Cooperation Treaty, and the Madrid Protocol. The United States took 
China off Special 301 lists in 1996, but continues to monitor China 
under Section 306 of the Trade Act, which allows the United States to 
begin a fast-track examination, if necessary.
    Still, inadequate procedures for registering trademarks and 
copyrights continue to create difficulties for foreign companies doing 
business in China. The destructive effect of widespread IPR violations 
has discouraged additional direct foreign investment and threatened the 
longterm viability of some U.S. business operations in China. Some U.S. 
companies claim losses from Chinese counterfeiting equal 15 to 20 
percent of total sales in China. One U.S. consumer products company 
estimates that it loses $US 200 million annually due to counterfeiting.
    Patents. U.S. pharmaceutical companies continue to experience 
difficulties obtaining protection for their products. It can take 
months for a foreign patent application for administrative protection 
to be approved in China. Domestic imitation or similar pharmaceuticals 
can legally be approved for marketing while a foreign manufacturer's 
application for administrative protection is pending.
    Trademarks. Counterfeiting trademarks of brand-name products in 
China remains prevalent. Chinese counterfeiters market unauthorized 
copies of a wide variety of products, from motorcycles and designer-
label clothes, to VCD's and computer hardware under U.S. trademarks. 
The inferior quality of fake and unauthorized products poses serious 
health and safety risks to consumers. While regional and interagency 
cooperation on IPR protection has improved, it is still inadequate. 
Insufficient administrative sanctions and infrequent use of criminal 
sanctions remain major enforcement problems.
    Copyrights. China is gradually recognizing the economic cost of 
copyright infringement. The past few months have witnessed a concerted 
anti-piracy crackdown effort, led by public security authorities and 
including all relevant ministries. Growing interest in copyright 
enforcement aside, significant problems still exist. The software 
industry lacks clear procedures for addressing corporate end-user 
software piracy; retail software revenue lost to piracy was estimated 
to total $US 1.1 billion at the end of 2000.
8. Worker Rights
    a. The Right of Association: China's constitution provides for 
``freedom of association,'' but in practice workers are not free to 
organize or join unions of their own choosing. Independent unions are 
illegal. Only official trade unions, affiliated with China's Communist 
Party and Government, are legal. By law, the AllChina Federation of 
Trade Unions (ACFTU) is the sole national labor organization. The ACFTU 
has control over all subsidiary union organizations and activities 
throughout the country. Workers are free to choose whether or not to 
join one of these official unions.
    b. The Right to Organize and Bargain Collectively: The law permits 
collective bargaining for workers in all types of enterprises. In 
practice, unions in the public sector have not traditionally engaged in 
collective bargaining, but rather acted as partners of management in 
determining wages, hours, and other conditions of work. In the private 
sector, where official unions are few and independent unions 
unavailable, workers face substantial obstacles to bargaining 
collectively with management. In 2001, changes to the Trade Union Law 
were proposed that could strengthen official unions' organizing and 
collective bargaining powers. On October 27, 2001, China amended its 
labor law recognizing limited rights for workers to strike.
    c. Prohibition of Forced or Compulsory Labor: Despite theoretical 
legal prohibitions against forced labor, China maintains penal 
facilities that require labor, to which individuals are sentenced 
through administrative process, without judicial review. In addition, 
individuals imprisoned through China's official judicial process are 
regularly forced to work while in prison. Reports suggest that, in some 
cases, authorities in penal institutions compel inmates to produce 
commercial goods and that working conditions for prisoners, especially 
on farms and mines, may be harsh.
    d. Minimum Age of Employment of Children: China's Labor Law bans 
children under 16 from most forms of work and bans dangerous work, like 
mining, for children aged 16 to 18. The law provides punishment for 
violation of these standards. Instances of child labor exist in China, 
although the problem is believed not to be widespread. The existence of 
a large surplus of adult workers, many of whom work long hours for low 
pay, probably reduces the attractiveness of child labor for employers. 
In 2001, the Chinese Government undertook an official investigation of 
the child labor issue.
    e. Acceptable Conditions of Work: China's Labor Law covers commonly 
accepted conditions of work. However, some workers, especially in the 
fast-growing private sector, work under illegal or unacceptable 
conditions. Workplace health and safety have been a particular problem. 
The Chinese Government has increased its efforts to enforce workplace 
health and safety regulations and, in 2001, proposed laws that would, 
for the first time, set consistent national workplace health and safety 
standards.
    f. Rights in Sectors with U.S. Investment: Worker rights practices 
in sectors with U.S. investment do not appear to vary substantially 
from those in other sectors of the economy. U.S. companies in China 
are, in general, favorably regarded for their employment practices. 
Some have voluntarily adopted codes of conduct that provide for 
independent inspection of working conditions in their facilities.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  1,846
Total Manufacturing.........  ...........  5,663
  Food & Kindred Products...  181          .............................
  Chemicals & Allied          245          .............................
   Products.
  Primary & Fabricated        183          .............................
   Metals.
  Industrial Machinery and    931          .............................
   Equipment.
  Electric & Electronic       3,208        .............................
   Equipment.
  Transportation Equipment..  147          .............................
  Other Manufacturing.......  768          .............................
Wholesale Trade.............  ...........  362
Banking.....................  ...........  78
Finance/Insurance/Real        ...........  740
 Estate.
Services....................  ...........  295
Other Industries............  ...........  594
    Total All Industries....  ...........  9,577
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                               HONG KONG


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................     157.4      162.5      161.7
  Real GDP Growth (pct)................       3.0       10.5       -0.3
  GDP by Sector:
    Agriculture........................       0.2        N/A        N/A
    Manufacturing......................       8.4        N/A        N/A
    Services...........................     124.6        N/A        N/A
    Government.........................      15.6       15.7       16.0
  Per Capita GDP (US$).................    23,824     24,375     23,571
  Labor Force (000s)...................     3,306      3,343      3,380
  Unemployment Rate (pct)..............       6.2        4.9        5.5
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2) \3\................       8.1        8.8       -0.4
  Consumer Price Inflation (pct).......      -4.0       -3.7       -1.5
  Exchange Rate (HK$/US$--annual
   average):...........................
    Official...........................      7.77       7.79       7.80
 
Balance of Payments and Trade:
  Total Exports FOB \4\................     172.9      201.6      193.5
    Exports to United States \5\.......      10.5       11.5       10.1
  Total Imports CIF....................     178.6      212.6      204.8
    Imports from United States \5\.....      12.6       14.6       13.8
  Trade Balance........................      -5.7      -10.9      -11.3
    Balance with United States \5\.....      -2.1       -3.1       -3.7
  External Public Debt.................         0          0          0
  Fiscal Balance/GDP (pct).............       0.8       -0.6       -1.8
  Current Account Balance/GDP (pct)....       7.2        5.4        2.7
  Debt Service Payments/GDP (pct)......         0          0          0
  Gold and Foreign Exchange Reserves         96.3      107.6      110.8
   (end of period) \6\.................
  Aid from United States...............         0          0          0
  Aid from All Other Sources...........         0          0          0
------------------------------------------------------------------------
\1\ Estimates from private sources based on monthly data through August
  2000.
\2\ Expenditurebased GDP estimates.
\3\ Money supply of Hong Kong dollars and foreign currencies.
\4\ Of which domestic exports (as opposed to reexports) constituted 12.6
  percent (1999), 13.0 percent (2000) and 10.3 percent (2001 estimate
  based on data through August).
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 2001 figures are estimates based on data
  available through July 2001. Hong Kong merchandise trade includes
  substantial reexports (mainly from China) to the United States, which
  are not included in these figures.
\6\ The Land Fund was included in the foreign exchange reserves
  effective July 1, 1997.
 
Source: Census and Statistics Department.


1. General Policy Framework
    Since becoming a Special Administrative Region of the People's 
Republic of China on July 1, 1997, Hong Kong has continued to manage 
its own financial and economic affairs, its own currency, and its 
independent role in international economic organizations and 
agreements.
    The Hong Kong Government generally pursues policies of 
noninterference in commercial decisions, low and predictable taxation, 
government spending increases within the bounds of real economic 
growth, competition subject to transparent laws (albeit without 
antitrust legislation) and consistent application of the rule of law. 
With few exceptions, the government allows market forces to set wages 
and prices and does not restrict foreign capital flows or investment. 
It does not impose export performance or local content requirements, 
and allows free repatriation of profits. Hong Kong is a dutyfree port, 
with few barriers to trade in goods and services.
    Until 1998, the government regularly ran budget surpluses and thus 
has amassed large fiscal reserves. The corporate profit tax is 16 
percent and personal income is taxed at a maximum of 15 percent. 
Property is taxed but interest, royalties, dividends, capital gains and 
sales are not. In the face of a possible structural deficit, the 
government has faced pressure to identify new sources of revenue. A 
recent Advisory Committee report suggested 13 options to broaden the 
tax base including a general consumption tax, capital gains tax and tax 
on interest. However, Financial Secretary Antony Leung has indicated 
that none of these reforms will be implemented in the near future.
    Because monetary policy is tied to maintaining the nominal exchange 
rate linked to the U.S. dollar, Hong Kong's monetary aggregates have 
effectively been demand-determined. The Hong Kong Monetary Authority, 
responding to market pressures, occasionally adjusts liquidity through 
interest rate changes and intervention in the foreign exchange and 
money markets.
    The Asian financial crisis provoked a sharp economic downturn in 
1998 and the first half of 1999, but Hong Kong's economic fundamentals 
remained strong, with a stable banking system, prudent fiscal policy, 
and massive dollar reserves. A strong, export-led recovery in 2000 and 
early 2001 stalled abruptly at mid-year, following a slump in consumer 
demand in the United States and Europe. The September 11 terrorist 
attacks in the United States and subsequent further economic downturn 
in Hong Kong's major markets have worsened the short-term outlook. 
Unemployment is increasing (to around five percent) and Hong Kong will 
experience recession in 2001. The local community remains concerned 
about Hong Kong's long-term competitiveness in the face of challenges 
from mainland China. In response to these economic difficulties, the 
government unveiled a series of modest stimulus measures, including 
infrastructure expenditures, small tax cuts, employment generation, and 
development funds for small and medium enterprises. However, 
authorities generally resisted pressure for large-scale government 
expenditures to kick start the economy.
    One exception to this traditional laissez faire approach was the 
creation of a new Innovation and Technology Commission, which in mid-
2000 was given responsibility for spearheading Hong Kong's move to 
create a ``knowledge based'' economy. The government's willingness to 
fund technology investment reflected the widespread belief that Hong 
Kong cannot compete in the high tech sector without targeted government 
support.
2. Exchange Rate Policies
    The Hong Kong dollar is linked to the U.S. dollar at an exchange 
rate of HK$7.8 = US$1.00. The link was established in 1983 to encourage 
stability and investor confidence in the runup to Hong Kong's reversion 
to Chinese sovereignty in 1997. PRC officials have supported Hong 
Kong's policy of maintaining the link. In December 2000, the Hong Kong 
Monetary Authority completed the third and final phase of the 
implementation of Hong Kong's U.S. dollar payment system, which allows 
local firms to achieve real-time settlement of U.S. dollar 
transactions. The establishment of the system is aimed at reinforcing 
monetary stability.
    There are no foreign exchange controls of any sort. Under the 
linked exchange rate, the overall exchange value of the Hong Kong 
dollar is influenced predominantly by the movement of the U.S. dollar 
against other major currencies. The price competitiveness of Hong Kong 
exports is therefore affected by the value of the U.S. dollar in 
relation to third country currencies, with Hong Kong exports suffering 
during periods of strong U.S. dollar exchange rates.
3. Structural Policies
    The government does not have pricing policies, except in a few 
sectors such as energy, which is a regulated duopoly. Even in these 
controlled areas, the government continues to pursue sector-by-sector 
liberalization. Hong Kong's personal and corporate tax rates remain low 
and it does not impose import or export taxes. The Monetary Authority 
implemented the final phase of interest rate deregulation covering 
savings and current accounts in July 2001. Interest rates on all types 
of deposits are determined by competitive market forces. Consumption 
taxes on tobacco, alcoholic beverages, and some fuels constrain demand 
for some U.S. exports. Hong Kong generally adheres to international 
product standards.
    Hong Kong's lack of antitrust laws has allowed monopolies or 
informal cartels, some of which are governmentregulated, to dominate 
certain sectors of the economy. These informal cartels can use their 
market position to block effective competition indiscriminately but do 
not discriminate against U.S. goods or services in particular.
4. Debt Management Policies
    The Hong Kong government has minuscule public debt. Repeated budget 
surpluses have meant the government has not had to borrow. To promote 
the development of Hong Kong's debt market, the government launched an 
exchange fund bills program with the issuance of 91day bills in 1990. 
Since then, maturities have gradually been extended up to 10 years. In 
March 1997, the Hong Kong Mortgage Corporation was set up to promote 
the development of the secondary mortgage market. The Corporation is 
100 percent government owned through the Exchange Fund. The Corporation 
purchases residential mortgage loans for its retained portfolio in the 
first phase, followed by packaging mortgages into mortgage-backed 
securities for sale in the second phase.
    In October 2000, the government launched a partial privatization of 
the Mass Transit Railway Corporation to the general public in Hong Kong 
and domestic and international professional and institutional 
investors. The Initial Share Offer of this first-ever Hong Kong 
government privatization raised about US$1.3 billion, accounting for 23 
percent of government's total shareholding.
    Hong Kong does not receive bilateral or multilateral assistance.
5. Significant Barriers to U.S. Exports
    Hong Kong is a member of the World Trade Organization, but does not 
belong to the WTO's plurilateral agreement on civil aircraft. As noted 
above, Hong Kong is a duty-free port with no quotas or dumping laws, 
and few barriers to the import of U.S. goods.
    Hong Kong requires import licenses for textiles, rice, meats, 
plants, and livestock--most of which are related to health standards. 
These licensing requirements do not have a major impact on U.S. 
exports.
    There are several barriers to entry in the services sector, as 
follows.
    The government decided in May 1999 to maintain a moratorium on 
additional licenses for the local fixed telecommunications network 
services (FTNS), now contested by five companies, until January 2003. 
In January 2000, the Hong Kong government began opening of other 
telecom sectors, issuing five licenses for FTNS using wireless networks 
and 12 licenses for external FTNS providers using satellites. In 
February 2000, the government issued Letters of Intent to 13 applicants 
for cable-based external facilities, and since then at least two 
American companies have been licensed to land international data cables 
in Hong Kong. In September 2001, the government issued four Third 
Generation (3G) mobile services licenses. Under the terms of the 
license, 3G operators must offer 30 percent of their network capacity 
to non-affiliated service providers. The government plans to invite 
additional FTNS licenses by the end of 2001 and will fully open the 
sector effective January 1, 2003.
    The Hong Kong government limits foreign ownership of free-to-air 
television stations to 49 percent and imposes strict residency 
requirements on the directors of broadcasting companies. In June 2000, 
the Legislative Council (LEGCO) passed a Broadcasting Bill that ended 
the foreign ownership limit for cable broadcasters and substantially 
liberalized Hong Kong's television market. By adopting a more open and 
flexible regulatory framework, the bill aims to expand program choice, 
encourage investment and technology transfer in the broadcasting 
industry, promote fair and effective competition and spur the 
development of Hong Kong as a regional broadcasting and communications 
hub. The Information, Technology and Broadcasting Bureau moved quickly 
to exercise the new authorities granted by this bill, announcing five 
new television licenses in July 2000. These new broadcasters (several 
of which are foreign owned) will create new outlets for U.S. 
entertainment companies, which already enjoy a substantial presence in 
the Hong Kong market.
    Our bilateral civil aviation agreement does not permit code sharing 
and restricts the ability of U.S. cargo and passenger airlines to carry 
fifth freedom traffic to and from Hong Kong and other points. These 
restrictions limit the expansion of U.S. carrier services in the Hong 
Kong market.
    In June 2000, the LEGCO passed a Legal Practitioners (Amendment) 
Bill that removed the privileges conferred on barristers from England, 
Scotland, Northern Ireland and other Commonwealth countries. A Hong 
Kong court may admit a foreign lawyer to practice as a barrister if he 
is considered a fit and proper person and has complied with the general 
admission requirements, including passing any required examinations. 
Foreign law firms are barred from hiring local lawyers to advise 
clients on Hong Kong law, even though Hong Kong firms can hire foreign 
lawyers to advise clients on foreign law. Foreign law firms can become 
``local law firms'' and hire Hong Kong attorneys, but they must do so 
on a 1:1 ratio with foreign lawyers.
    Foreign banks established after 1978 are permitted to maintain only 
three branches (automated teller machines meet the definition of a 
branch). The Hong Kong Monetary Authority has promised to consider 
further relaxation of this limit in 2001. In the meantime, foreign 
banks can acquire local banks that have unlimited branching rights.
6. Export Subsidies Policies
    The Hong Kong Government neither protects nor directly subsidizes 
manufacturers who export. It does not offer exporters preferential 
financing, special tax or duty exemptions on imported inputs, resource 
discounts, or discounted exchange rates.
    The Trade Development Council, a quasi-governmental statutory 
organization, engages in export promotion activities and promotes Hong 
Kong as a hub for trade services. The Hong Kong Export Credit and 
Insurance Corporation sells insurance protection to exporters.
7. Protection of U.S. Intellectual Property
    The Berne Convention for the Protection of Literary and Artistic 
Works, the Paris Convention on Industrial Property, and the Universal 
Copyright Convention (Geneva, Paris) apply to Hong Kong by virtue of 
China's membership. Hong Kong, a WTO member, passed a new Copyright Law 
in June 1997 and a modernized Trademark Law in May 2000. Enforcement of 
copyright and trademarks has improved measurably in recent years, but 
eliminating intellectual property piracy will require sustained effort.
    Copyrights: Sale of pirated discs at retail shopping arcades is 
much less widespread than it used to be but remains a problem. The 
United States has encouraged the government at senior levels to crack 
down on this retail trade, and on the distributors and manufacturers 
behind them. Hong Kong has responded by doubling Customs' enforcement 
manpower, conducting more aggressive raids at the retail level, passing 
new legislation and engaging in public education efforts to encourage 
respect for intellectual property rights. Recent raids have closed down 
some of the most notorious retail arcades and dispersed this illicit 
trade. In the first eight months of 2001, Customs seized 5.79 million 
pirated optical discs with a market value of US$14.1 million, and 
arrested 1,049 people. Hong Kong Customs intelligence operations and 
raids on underground production facilities have shut down most pirate 
manufacturing and forced retailers to rely increasingly on smuggled 
products. The judiciary has also begun to increase sentences and fines 
for copyright piracy, handing down 524 piracy-related jail sentences in 
the first half of 2001.
    With the government's success against optical disc pirates, 
increasing attention has turned to the problem of computer end-user 
piracy. In 1999, Hong Kong courts handed down a first conviction for 
unauthorized dealer hard-disk loading. The LEGCO also passed in June 
2000 an IPR miscellaneous amendments bill which makes it clearly 
illegal for companies to use unlicensed software in trade or business. 
Faced with intensive public criticism of the new criminal provisions 
for photocopying newspapers and magazine articles, the LEGCO passed a 
bill in June 2001 to suspend criminal provisions for unauthorized 
copying of materials other than computer programs, movies, television 
dramas and music. The bill also suspended criminal penalties for the 
use of parallel-import computer software. The suspension is an interim 
arrangement expiring on July 31, 2002. The government will consult the 
community with a view to formulating a long-term solution before then.
    Broadcast satellite signal piracy is also a growing concern for 
U.S. companies, and industry associations have asked the government to 
take action against pubs and other public venues that use satellite 
signals without compensation.
    Trademarks: Sale of counterfeit items, particularly handbags and 
apparel, is widespread in Hong Kong's outdoor markets. Customs 
officials have conducted numerous raids, but these actions have had 
little impact on the overall availability of counterfeit goods.
    New Technologies: U.S. industry associations report that Hong Kong-
based web sites are being used to sell and transmit pirate software and 
music. Since April 2000, Hong Kong Customs has raided nine 
establishments believed to be engaged in Internet piracy. None of these 
cases has gone to court, but these raids put Hong Kong well ahead of 
its neighbors in tackling the problem of Internet-based piracy.
    Hong Kong's stepped-up IPR enforcement effort has helped to reduce 
estimated losses to U.S. film and music companies. The Business 
Software Alliance reported in May 2001 that software piracy in Hong 
Kong rose from 56 percent in 1999 to 57 percent in 2000. However, 
estimated total losses for the software industry decreased from US$88.6 
million to US$86 million. U.S. film and music distributors also report 
increasing levels of legitimate sales in Hong Kong.
8. Workers Rights
    a. The Right of Association: Local law provides for right of 
association and the right of workers to establish and join 
organizations of their own choosing. Trade unions must be registered 
under the Trade Unions Ordinance. The basic precondition for 
registration is a minimum of seven persons who serve in the same 
occupation. The government does not discourage or impede the formation 
of unions.
    Workers who allege antiunion discrimination have the right to have 
their cases heard by the Labor Relations Tribunal. Violation of 
antiunion discrimination provisions is a criminal offense. Although 
there is no legislative prohibition of strikes, in practice, most 
workers must sign employment contracts that state that walking off the 
job is a breach of contract and can lead to summary dismissal.
    b. The Right to Organize and Bargain Collectively: In June 1997, 
the Legislative Council passed three laws that greatly expanded the 
collective bargaining powers of Hong Kong workers, protected them from 
summary dismissal for union activity, and permitted union activity on 
company premises and time. However, the Provisional Legislature 
repealed these ordinances, removing workers' new statutory protection 
against summary dismissal for union activity. Legislation passed in 
October 1997 permits the cross-industry affiliation of labor union 
federations and confederations, and allows free association with 
overseas trade unions (although notification of the Labor Department 
within one month of affiliation is required), but removed the legal 
stipulation of trade unions' right to engage employers in collective 
bargaining and banned the use of union funds for political purposes. 
Collective bargaining is not widely practiced.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor is 
prohibited under the Bill of Rights Ordinance. While this legislation 
does not specifically prohibit forced or bonded labor by children, 
there are no reports of such practices in Hong Kong.
    d. Minimum Age for Employment of Children: The ``Employment of 
Children'' Regulations prohibit employment of children under age 15 in 
any industrial establishment. Children ages 13 and 14 may be employed 
in certain nonindustrial establishments, subject to conditions aimed at 
ensuring a minimum of nine years of education and protecting their 
safety, health, and welfare. In 2000, there were three convictions for 
violations of the Employment of Children Regulations.
    e. Acceptable Conditions of Work: Aside from a small number of 
trades and industries in which a uniform wage structure exists, wage 
levels are customarily fixed by individual agreement between employer 
and employee and are determined by supply and demand. Some employers 
provide workers with various kinds of allowances, free medical 
treatment and free subsidized transport. There is no statutory minimum 
wage except for foreign domestic workers (US$500 per month). To comply 
with the Sex Discrimination Ordinance, provisions in the Women and 
Young Persons (Industry) Regulations that had prohibited women from 
joining dangerous industrial trades and limited their working hours 
were dropped. Work hours for people aged 15 to 17 in the manufacturing 
sector remain limited to 8 per day and 48 per week between 6 a.m. and 
11 p.m. Overtime is prohibited for all persons under the age of 18 in 
industrial establishments. Employment in dangerous trades is prohibited 
for youths, except 16 and 17 year old males.
    The Labor Inspectorate conducts workplace inspections to enforce 
compliance with these and health and safety regulations. Worker safety 
and health has improved, but serious problems remain, particularly in 
the construction industry. In 2000, a total of 58,092 occupational 
accidents (33,652 of which are classified as industrial accidents) were 
reported, of which 199 were fatal. Employers are required under the 
Employee's Compensation Ordinance to report any injuries sustained by 
their employees in work-related accidents.
    f. Rights in Sectors with U.S. Investment: U.S. direct investment 
in manufacturing is concentrated in the electronics and electrical 
products industries. Aside from hazards common to such operations, 
working conditions do not differ materially from those in other sectors 
of the economy. Relative labor market tightness and high job turnover 
have spurred continuing improvements in working conditions as employers 
compete for available workers.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  202
Total Manufacturing.........  ...........  3,283
  Food & Kindred Products...  -55          .............................
  Chemicals & Allied          374          .............................
   Products.
  Primary & Fabricated        349          .............................
   Metals.
  Industrial Machinery and    138          .............................
   Equipment.
  Electric & Electronic       1,758        .............................
   Equipment.
  Transportation Equipment..  33           .............................
  Other Manufacturing.......  686          .............................
Wholesale Trade.............  ...........  5,617
Banking.....................  ...........  2,405
Finance/Insurance/Real        ...........  7,828
 Estate.
Services....................  ...........  546
Other Industries............  ...........  3,427
    Total All Industries....  ...........  23,308
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                               INDONESIA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1999      2000      *2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      142       153       158
  Real GDP Growth (pct)...................      0.2       4.8       3.0
  GDP by Sector:
    Agriculture...........................     27.8      26.5      27.0
    Manufacturing.........................     36.2      39.9      40.2
    Services..............................     56.9      60.2      61.1
    Government............................      7.2       7.6       7.7
  Per Capita GDP (US$)....................      688       738       742
  Labor Force (millions)..................     94.8      96.5      98.2
  Unemployment Rate (pct) \1\.............      6.4       6.1       6.4
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2) (pct).................     11.9      15.6        10
  Consumer Price Inflation (pct)..........      2.0       9.3        12
  Exchange Rate (Rupiah/US$ annual            7,855     8,421    10,500
   average)...............................
 
Balance of Payments and Trade:
  Total Exports FOB (includes oil and gas)     48.6      62.1      62.5
    Exports to United States \2\..........      9.5      10.3      10.4
  Total Imports CIF (includes oil and gas)     24.0      33.5      36.0
    Imports from United States \2\........      2.0       2.4       2.3
  Trade Balance...........................     24.6      28.6      26.5
    Balance with United States \2\........      7.5       7.9       8.1
  External Public Debt....................     85.5      84.0      83.0
  Fiscal Deficit/GDP (pct)................      3.9       1.5       3.7
  Debt Service Payments/GDP (pct) \3\.....     12.3      12.1      14.0
  Current Account Balance/GDP(pct)........      4.1       4.8       2.7
  Gold and Foreign Exchange Reserves (end      27.1      23.3      29.5
   of period).............................
  Aid from United States (millions of US$)      139       205       230
  Aid from All Other Sources \4\..........      7.8       4.2       4.5
------------------------------------------------------------------------
* Embassy estimate.
\1\ Official Government of Indonesia estimate of open unemployment. Does
  not measure underemployment.
\2\ Department of Commerce statistics, customs value basis. Figures for
  2001 are estimates based on January to August data.
\3\ IBRD Debtor reporting system. External debt only.
\4\ 2001 number is amount pledged.
 
Sources: Government of Indonesia, U.S. Department of Commerce (for trade
  with U.S.), IMF (exchange rates), U.S. Agency for International
  Development (for bilateral assistance).


1. General Policy Framework
    More than four years after the Asian financial crisis, Indonesia 
continues to struggle with the wreckage of its 1998 economic collapse. 
Its efforts to return to the sustained economic growth it enjoyed 
before 1997 have been made more difficult by the fact that the country 
is simultaneously undergoing a painful and, so far, incomplete 
transition to democracy. Government institutions are weak, political 
competition is robust and often violent, and powerful forces of the old 
regime retain sufficient influence to block reforms that threaten their 
privileges.
    In July 2001, the People's Consultative Assembly, the nation's 
highest legislative body removed President K.H. Abdurrachman Wahid and 
elected Vice President Megawati Soekarnoputri to the Presidency after 
almost a year of fierce political infighting. The new government's 
first task was to reverse a slumping economy and reinvigorate the 
economic reform process. Even if the new government succeeds in 
establishing much needed coherence in economic policymaking, daunting 
challenges remain. The Wahid government left most of the nation's 
problems unresolved, including: building effective, democratic 
institutions; establishing the rule of law; restoring private capital 
inflows; resolving violent regional conflicts; and addressing the 
chronic economic problems of corruption, a heavy debt burden, and a 
crippled banking system.
    Indonesia is the world's fourth most populous nation and the anchor 
of Southeast Asia politically and economically. The country has a 
strategic location, a large labor force earning relatively low wages, 
and abundant natural resources. The country retains its diversified 
export base of oil, gas, minerals, and agricultural commodities such as 
coffee, tea, rubber, timber, palm oil, and shrimp. After a nascent 
economic recovery in 2000, recent signs point to an economic slowdown 
coupled with increasing inflationary pressures. Observers expect 
overall real GDP growth in 2001 to be 3 percent, down from 4.8 percent 
a year earlier. The slowdown was most prominent in the export sector. 
Indonesia's exports in the first seven months of 2001 fell 3.4 percent 
over the same period one year earlier due to slower growth in 
Indonesia's major export markets. Indonesian exports to the United 
States will be flat this year at about $10.5 billion while imports from 
the United States, which fell by more than half between 1997 and 1998, 
will be about $2.3 billion.
    The IMF-supported stabilization and recovery program has provided 
the framework for Indonesia's economic recovery since November 1997. 
However, the government has been slow to implement its commitments. The 
Indonesian Bank Restructuring Agency (IBRA) has recapitalized the 
banking system, but it has not moved quickly to dispose of assets 
acquired in the debt-restructuring process or to take on uncooperative 
debtors. Thus it runs the risk of having to inject more funds into the 
banking system. The Indonesian government has historically maintained a 
``balanced'' budget: expenditures were covered by the sum of domestic 
revenues and foreign aid and borrowing, without resort to domestic 
borrowing. Often the government ended the year with a slight surplus, 
and this remains the government's long-term goal. However, the 
financial crisis put a heavy burden on government finances. To 
recapitalize the banking system, the government issued more than Rp 426 
trillion (USD 41 billion, at current exchange rates). Almost $25 
billion of this debt is at variable rates linked to SBI rates. This 
limits the government's ability to use monetary policy to fight 
inflation. Interest payments on domestic debt will reach Rp 55 trillion 
($6.4 billion) or 19 percent of total spending in FY-2001. The 
government's chronic inability to expand domestic tax revenues and 
delays in sales of government assets held by IBRA means the 
government's fiscal position will remain precarious. The gap in FY-2002 
is targeted at approximately 2.5 percent of GDP.
    In parallel with its fiscal policy, the Indonesian government had a 
reputation for prudent monetary policy that helped keep consumer price 
inflation in the single digits. However, the massive depreciation of 
the rupiah that began in mid-1997 and huge liquidity injections into 
the banking system have fueled inflation. Indonesian monetary 
authorities tried to dampen pressure on prices and the exchange rate by 
tightening monetary policy but the money supply has expanded faster 
than the targets agreed with the IMF (although base money is currently 
in line with targets). By mid-2001, inflation had reached an annual 
rate of 13 percent.
2. Exchange Rate Policies
    In August 1997, the government eliminated the rupiah intervention 
band in favor of a floating exchange rate policy.
3. Structural Policies
    In October 1997, deteriorating conditions led Indonesia to request 
support from the International Monetary Fund (IMF). The government 
signed its first Letter of Intent (LOI) with the IMF on October 31, 
1997. The letter called for a three-year economic stabilization and 
recovery program, supported by loans from the IMF ($10 billion), the 
World Bank, the Asian Development Bank, and bilateral donors. Apart 
from financial support, the international community also offered 
detailed technical assistance to the government. Foreign governments 
and private organizations also contributed food and other humanitarian 
assistance.
    Indonesia launched its current three-year (EEF) agreement with the 
IMF in January 2000. A central focus of the IMF program is maintenance 
of fiscal sustainability and macroeconomic stability. The Government of 
Indonesia's progress on commitments has been erratic and, as a result, 
Indonesia has only completed three reviews under the program. (Reviews 
were originally scheduled on a quarterly basis.) The Government of 
Indonesia has failed to follow through on a number of crucial 
commitments that are important for putting public finances on a 
sustainable footing and maintaining macroeconomic stability. The 
Government of Indonesia has moved slowly on the sale of assets 
nationalized during the 1998 crisis, SOE privatization, and 
restructuring and privatization of the banking system. In addition, 
during the Wahid administration, the Government of Indonesia pushed for 
amendments to the central bank that would undermine Bank Indonesia's 
independence. The new Megawati government resumed discussions with the 
IMF in August 2001 and concluded a new LOI in September.
4. Debt Management Policies
    Indonesia's foreign debt totaled $137.6 billion as of August 2001, 
with about $74 billion owed by the public sector and $63 billion by the 
private sector. Indonesia negotiated two successive two-year Paris Club 
agreements, rescheduling 100 percent of principal, but not interest. 
Indonesia's current Paris Club agreement expires at the end of March 
2002.
    In 1999, the government introduced a monitoring system to collect 
information on all foreign exchange transactions, including foreign 
borrowing. Borrowing in connection with state-owned enterprises has 
been regulated since 1991. The government continues to assert that it 
will not impose capital controls.
5. Significant Barriers to U.S. Exports
    In recent years, Indonesia has liberalized its trade regime and 
taken a number of important steps to reduce protection. Since 1996, the 
Indonesian government has issued a series of deregulation packages 
intended to encourage foreign and domestic private investment. These 
packages have reduced overall tariff levels, simplified the tariff 
structure, removed restrictions, and replaced non-tariff barriers with 
more transparent tariffs.
    Despite the severe economic crisis of the past four years, 
Indonesia has maintained its policy of steady long-term tariff 
liberalization. Indonesia's applied tariff rates range from 5 to 30 
percent, although bound rates are, in many cases, much higher. The 
major exceptions to this are the 170 percent duty rates applied to all 
imported distilled spirits and the tariffs on motor vehicles and motor 
vehicle kits. Consecutive IMF programs in which Indonesia committed to 
implement a three-tier tariff structure (zero, five, or ten percent) on 
all imported products, except motor vehicles and alcoholic beverages, 
have reinforced the long-term liberalization policy. Indonesia also 
committed to eliminate all non-tariff barriers, except those for health 
or safety reasons, by the end of 2001. The ongoing domestic political 
crisis and deteriorating relations with the IMF may delay that 
timetable somewhat. More effective tariff liberalization has come from 
the ASEAN Free Trade Agreement under which members committed to a 
Common Effective Preferential Tariff (CEPT) scheme for most traded 
goods by 2003. Indonesia implemented its second stage of AFTA tariff 
reductions on January 1, 2001.
    Import tariffs on vehicles were lowered in June 1999 to 25-80 
percent (depending on engine size), 0-45 percent for trucks, and 25-60 
percent for motorcycles. The government also lowered rates for parts to 
a maximum 15 percent. Luxury taxes for sedans range from 10-75 percent, 
for trucks 0 percent, and for motorcycles 0-75 percent.
    Services trade barriers to entry continue to exist in many sectors, 
although the Government of Indonesia has loosened restrictions 
significantly in the financial sector. Foreign law firms, accounting 
firms, and consulting engineers must operate through technical 
assistance or joint venture arrangements with local firms.
    Indonesia has liberalized its distribution system, including ending 
some restrictions on trade in the domestic market. For example, 
restrictive marketing arrangements for cement, paper, cloves, other 
spices, and plywood were eliminated in February 1998. Indonesia opened 
its wholesale and large-scale retail trade to foreign investment, 
lifting most restrictions in March 1998. Some retail sectors are still 
reserved for small-scale enterprises under another 1998 decree. Large 
and medium scale enterprises that wish to invest in these sectors must 
enter into a partnership agreement with a small-scale enterprise, 
although this may not require a joint venture or partial share 
ownership arrangement.
    The weakness of the central government in a period of significant 
political upheaval has encouraged special interests, especially in the 
agricultural sector, to seek to reinstate some former special trade 
privileges. So far these efforts have had limited success but the trend 
is worrisome. Food labeling regulations requiring labels in the 
Indonesian language and expiration date (rather than the standard 
``best used by'' date) are in place, but are not being enforced. A 
product registration regulation is also in place that requires detailed 
product processing information that approaches proprietary information. 
The registration procedure can also be quite lengthy and expensive. 
Indonesian importers and U.S. exporters have expressed concern that 
these regulations could act as non-tariff barriers to imports of 
packaged food products.
    New laws on regional autonomy and fiscal decentralization have 
granted significant new powers to provincial and sub-provincial 
governments. Local governments have begun to impose new tax or non-tax 
barriers on inter-regional trade as they seek new sources of local 
revenue. Implementing regulations have not been issued to fully clarify 
the authority and responsibility of the different levels of government.
    Investment Barriers: The government is committed to reducing 
burdensome bureaucratic procedures and substantive requirements for 
foreign investors. In 1994, the government dropped initial foreign 
equity requirements and sharply reduced divestiture requirements. 
Indonesian law provides for both 100 percent direct foreign investment 
projects and joint ventures with a minimum Indonesian equity of five 
percent. The government most recently revised its so-called ``negative 
investment list'' in July 2001. Sectors that remain closed to all 
foreign investment include taxi and bus transportation, local marine 
shipping, film production, distribution and exhibition, radio and 
television broadcasting and newspapers, some trade and retail services, 
and forestry concessions. The government removed foreign ownership 
limitations on banks and on firms publicly traded on Indonesian stock 
markets.
    The Capital Investment Coordinating Board (BKPM) must approve most 
foreign investment proposals. Investments in the oil and gas, mining, 
forestry, and financial services sectors are covered by specific laws 
and regulations and handled by the relevant technical ministries. With 
the implementation of political and fiscal decentralization, provincial 
investment boards now play a much great role in approving foreign 
investments in their regions.
    Government Procurement Practices: Technical guidelines for 
government procurement of goods and services are governed by 
Presidential Decree (Keppres) No. 18/2000. The decree establishes set-
asides for small- and medium-sized enterprises according to the size of 
the procurement. Foreign suppliers are restricted to contracts worth 
over Rp. 10 billion ($1.2 million) for goods/services and over Rp. 2 
billion ($230,000) for consulting services. A foreign supplier is 
required to cooperate with a small- or medium-sized company or 
cooperative in the implementation of the contract. Bilateral or 
multilateral donors, who specify procurement procedures, finance most 
large government contracts. For large projects funded by the 
government, international competitive bidding practices are to be 
followed. The government seeks concessional financing which includes a 
3.5 percent interest rate, a 25-year repayment period and seven-year 
grace period. Some projects do proceed on less concessional terms. 
Foreign firms bidding on certain government-sponsored construction or 
procurement projects may be asked to purchase and export the equivalent 
in selected Indonesian products. Government departments and institutes 
and state and regional government corporations are expected to utilize 
domestic goods and services to the maximum extent feasible, but this is 
not mandatory for foreign aid-financed goods and services procurement. 
State-owned enterprises that have offered shares to the public through 
the stock exchange are exempted from government procurement 
regulations.
6. Export Subsidies Policies
    Indonesia joined the GATT Subsidies Code and eliminated export-loan 
interest subsidies as of April 1, 1990. As part of its drive to 
increase non-oil and gas exports, the government permits restitution of 
Value-Added Tax (VAT) paid by a producing exporter on purchases of 
materials for use in manufacturing export products. Exemption from or 
drawbacks of import duties are available for goods incorporated into 
exports. Free trade zones and industrial estates are combined in 
several bonded areas. Since 1998, the government has gradually 
increased the share of production that firms located in bonded zones 
are able to sell domestically, up to 100 percent.
7. Protection of U.S. Intellectual Property
    Indonesia is a member of the World Intellectual Property 
Organization (WIPO) and in 1997 became a full party to the Paris 
Convention for the Protection of Intellectual Property, the Berne 
Convention for the Protection of Literary and Artistic Works, the 
Patent Cooperation Treaty, and the Trademark Law Treaty. Indonesia was 
the first country in the world to ratify the WIPO Copyright Treaty, but 
has not ratified the companion WIPO Performances and Phonograms Treaty. 
In April 2001, the U.S. Trade Representative placed Indonesia on the 
Special 301 Priority Watch List citing continued lack of effective 
enforcement of IP rights.
    Piracy of software, books, and videos in Indonesia is rampant. U.S. 
rightholders are concerned about the rapid increase in pirate optical 
disc (OD) production facilities in Indonesia. The capacity of these 
facilities far exceeds Indonesia's domestic demand indicating Indonesia 
is a growing export base for pirated media and software. The U.S. 
government has urged Indonesia to take quick action to register and 
control OD production equipment.
    As part of its efforts to comply with the WTO TRIPS agreement, in 
December 2000, Indonesia enacted new laws on protection of trade 
secrets, industrial design, integrated circuits, and plant varieties. 
In July 2001, Parliament passed amendments to existing laws on patent 
and trademarks. The government is also preparing amendments to the 
existing copyright law. Even with new laws in place, however, 
inadequate enforcement and a corrupt judicial system pose daunting 
problems for U.S. companies seeking enforcement of their rights in 
Indonesia. The Indonesian government has, at times, responded to U.S. 
companies bringing specific complaints about pirated goods or trademark 
abuse, but the Indonesian court system can be frustrating and 
unpredictable, and effective punishment of pirates of intellectual 
property is rare.
    Indonesia's new Patent Law did not improve several areas of concern 
to U.S. companies, including compulsory licensing provisions, a 
relatively short term of protection, and a provision allowing 
importation of 50 pharmaceutical products by non-patent holders.
8. Worker Rights
    a. The Right of Association: Private sector workers, including 
those in export processing zones, are by law free to form worker 
organizations provided there are at least ten workers who wish to do 
so. All unions must be registered with the government. In August 2000, 
the government enacted a new law governing trade unions that continued 
a trend since 1998 toward removing barriers to freedom of association. 
Some labor organizations criticized the new law for maintaining some 
existing restrictions on unions. There are currently 59 national unions 
registered. The courts may dissolve a union under the 2000 law if union 
members are convicted of crimes against the state and sentenced to at 
least five years in prison.
    Civil servants are no longer required to belong to KORPRI, a 
nonunion association whose central development council is chaired by 
the Minister of Home Affairs. State enterprise employees, defined to 
include those working in enterprises in which the state has a five 
percent holding or greater, usually were KORPRI members in the past, 
but a small number of state enterprises have units of the Federation of 
All-Indonesian Trade Unions (SPSI). New unions are now seeking to 
organize employees in some state-owned enterprises. Teachers must 
belong to the teachers' association (PGRI). All organized workers, 
except those engaged in public service, have the legal right to strike. 
Private sector strikes are frequent.
    b. The Right to Organize and Bargain Collectively: Registered 
unions can legally engage in collective bargaining and can collect dues 
from members through a checkoff system. In companies without unions, 
the government discourages workers from utilizing outside assistance, 
preferring that workers seek its assistance. By regulation, 
negotiations must be concluded within 30 days or be submitted to the 
Department of Manpower for mediation and conciliation or arbitration. 
Agreements are for two years and can be extended for one year. 
According to NGOs involved in labor issues, the provisions of these 
agreements rarely go beyond the legal minimum standards established by 
the government, and the agreements are often merely presented to worker 
representatives for signing rather than being negotiated.
    Although government regulations prohibit employers from 
discriminating or harassing employees because of union membership, 
there are credible reports from union officials of employer retribution 
against union organizers, including firing, which is not effectively 
prevented or remedied in practice. Administrative tribunals adjudicate 
charges of antiunion discrimination. However, because many union 
members believe the tribunals generally side with employers, many 
workers reject or avoid the procedure and present their grievances 
directly to the national human rights commission, parliament and other 
agencies. Security forces continue to involve themselves in labor 
issues, despite the Minister of Manpower's revocation in 1994 of a 1986 
regulation allowing the military to intervene in strikes and other 
labor actions.
    c. Prohibition of Forced or Compulsory Labor: The law forbids 
forced labor, including forced and bonded labor by children. In 1999 
the government ratified ILO Conventions 105 (Forced Labor) and began 
removing children from the fishing platforms.
    d. Minimum Age for Employment of Children: Child labor exists in 
both industrial and rural areas, and in both the formal and informal 
sectors. According to ILO, over 3.4 million children (under 15 years of 
age) work ten hours or more per week. Some observers believe that 
number to be understated, because documents verifying age are easily 
falsified. The ILO ranks Indonesia as the third worst in Asia on child 
labor conditions. Indonesia was one of the first countries to be 
selected for participation in the ILO's International Program on the 
Elimination of Child Labor (IPEC) and the government and the ILO signed 
a Memorandum of Understanding in March 2001. The government followed 
this with Presidential decree No. 12 of 2001 creating a National Action 
Committee to Eliminate the Worst Forms of Child Labor. Although the ILO 
has sponsored training of labor inspectors on child labor matters under 
the IPEC program, enforcement remains lax. The government ratified ILO 
Convention 138, which establishes a minimum working age of 15, in April 
1999 ILO Convention 182 on the Elimination of the Worst Forms of Child 
Labor in March 2000.
    e. Acceptable Conditions of Work: Indonesia does not have a 
national minimum wage. Rather, area wage councils working under the 
supervision of the national wage council establish minimum wages for 
regions and basic needs figures for each province, a monetary amount 
considered sufficient to enable a single worker to meet the basic needs 
of nutrition, clothing, and shelter. In Jakarta, the minimum wage is 
about $35 (Rp. 344,000) per month at an exchange rate of Rp 10,000 to 
the dollar). There are no reliable statistics on the number of 
employers paying at least the minimum wage. Independent observers' 
estimates range between 30 and 60 percent.
    Labor law and ministerial regulations provide workers with a 
variety of other benefits, such as social security, and workers in more 
modern facilities often receive health benefits, free meals, and 
transportation. The law establishes seven-hour workdays and 40-hour 
workweeks, with one 30-minute rest period for each 4 hours of work. The 
law also requires one day of rest weekly. The daily overtime rate is 1-
1/2 times the normal hourly rate for the first hour, and twice the 
hourly rate for additional overtime. Observance of laws regulating 
benefits and labor standards varies from sector to sector and by 
region. Employer violations of legal requirements are fairly common and 
often result in strikes and employee protests. In general, government 
enforcement and supervision of labor standards are weak. Both law and 
regulations provide for minimum standards of industrial health and 
safety. In the largely westernoperated oil sector, safety and health 
programs function reasonably well. However, in the country's 100,000 
larger registered companies in the non-oil sector, the quality of 
occupational health and safety programs varies greatly. The enforcement 
of health and safety standards is severely hampered by corruption, by 
the limited number of qualified Department of Manpower inspectors and 
by the low level of employee appreciation for sound health and safety 
practices. Workers are obligated to report hazardous working 
conditions. Employers are forbidden by law from retaliating against 
those who do, but the law is not effectively enforced.
    f. Rights in Sectors with U.S. Investment: Working conditions for 
direct-hire employees in firms with U.S. ownership are widely 
recognized as better than the norm for Indonesia. Contract labor, 
although widely used, does not receive the same benefits as direct hire 
employees. Application of legislation and practice governing worker 
rights is largely dependent upon whether a particular business or 
investment is characterized as private or public. U.S. investment in 
Indonesia is concentrated in the petroleum and related industries, 
primary and fabricated metals (mining), and pharmaceutical sectors.
    Foreign participation in the petroleum sector is largely in the 
form of production sharing contracts between the foreign companies and 
the state oil and gas company, Pertamina, which retains control over 
all activities. All direct employees of foreign companies under this 
arrangement are considered state employees and thus all legislation and 
practice regarding state employees generally applies to them. Employees 
of foreign companies operating in the petroleum sector are organized in 
KORPRI. Employees of these state enterprises enjoy most of the 
protection of Indonesia labor laws including the right to strike, join 
labor organizations, or negotiate collective agreements. Contract 
workers in the petroleum sector do have the right to organize and have 
joined independent trade unions. A 1995 Minister of Manpower regulation 
exempts the petroleum sector from legislation requiring employers to 
give permanent worker status to workers who have worked for the company 
under short-term contracts for more than three years. Some companies 
operating under other contractual arrangements, such as contracts of 
work and, in the case of the mining sector, coal contracts of work, do 
have unions and collective bargaining agreements.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  8,440
Total Manufacturing.........  ...........  273
  Food & Kindred Products...  21           .............................
  Chemicals & Allied          148          .............................
   Products.
  Primary & Fabricated        1            .............................
   Metals.
  Industrial Machinery and    -28          .............................
   Equipment.
  Electric & Electronic       3            .............................
   Equipment.
  Transportation Equipment..  (\1\)        .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  (\1\)
Banking.....................  ...........  249
Finance/Insurance/Real        ...........  385
 Estate.
Services....................  ...........  (\1\)
Other Industries............  ...........  2,219
    Total All Industries....  ...........  11,605
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 JAPAN


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000       2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................     4,505      4,753   \1\ 4,129
  Real GDP Growth (pct)................       0.8        1.5   \1\ -0.5
  GDP by Sector:
    Agriculture........................        58        N/A        N/A
    Manufacturing......................       970        N/A        N/A
    Services...........................       882        N/A        N/A
    Government.........................       403        N/A        N/A
  Per Capita Income (US$)..............    34,283     36,455        N/A
  Labor Force (millions)...............      67.8       67.7   \1\ 68.0
  Unemployment Rate (pct)..............       4.7        4.8    \2\ 5.0
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2+CD).................       3.6        2.1    \1\ 2.9
  Consumer Price Inflation.............       0.3       -0.6   \1\ -0.7
  Exchange Rate (Yen/US$--annual            13.91      114.9    \3\ 121
   average)............................
 
Balance of Payments and Trade:
  Total Exports FOB....................     403.9      434.0    \4\ 180
    Exports to United States FOB.......     121.8      129.0     \4\ 63
  Total Imports CIF....................     280.5      344.2    \4\ 184
    Imports from United States CIF.....      57.8       65.3     \4\ 34
  Trade Balance........................     123.4       89.8     \4\ 30
    Trade Balance with United States...      64.0       63.7     \4\ 29
  Current Account Surplus/GDP (pct)....       2.4        2.5    \1\ 2.2
  External Public Debt.................       N/A        N/A        N/A
  Fiscal Deficit/GDP (pct).............       7.9       -7.5   \1\ -6.2
  Debt Service Payments/GDP (pct)......       N/A        N/A        N/A
  Gold and Foreign Exchange Reserves...     288.1      368.3    \2\ 360
  Aid from United States...............         0          0          0
  Aid from All Other Sources...........         0          0          0
------------------------------------------------------------------------
\1\ 2001 figures are IMF projections (World Economic Outlook, September
  2001).
\2\ As of end-July, 2001.
\3\ January-August 2001, average.
\4\ January-June 2001, seasonally adjusted, BOP basis.
 
Sources: IMF, OECD, Ministry of Finance, Bank of Japan, Economic &
  Social Research Institute (Cabinet Office).


1. General Policy Framework
    The Japanese economy is once again entering recession, in response 
to weakening external demand and reduction of worldwide investment in 
high technology sectors. Industrial production and manufacturing 
employment have both fallen sharply through mid-year, and most private 
forecasts expect a GDP decline of roughly one percent in 2001, with 
little if any growth in the following year.
    Japan's economic performance has been disappointing for most of the 
past ten years, with uneven but generally low growth, and persistent 
deflation (general price declines). The sources of Japan's economic 
difficulties go back to the collapse of the asset-price bubble in 1991, 
which left the banking and corporate sector with excessive and often 
unproductive investment and a huge volume of bad debts. Regulatory 
barriers that have prevented resources from moving to new growth 
sectors, and a decline in rates of return on investment have also 
compounded Japan's economic difficulties.
    Until this year, the government response to Japan's sluggish 
economy has been an expansionary fiscal policy, through a series of 
supplemental budgets, emergency spending packages (largely concentrated 
on public works), and special loan guarantees to stem the tide of 
corporate bankruptcies. The current Koizumi government has sought to 
break from the policy of fiscal support by capping the government 
budget deficit and promising thoroughgoing structural reform ``without 
sacred cows.'' The Bank of Japan has also reduced interest rates on 
short term funds to essentially zero, but its ability to lower real 
interest rates has been hampered by persistent deflation.
2. Exchange Rate Policy
    The Japanese yen floats against other currencies, although the 
Japanese authorities have, at times, intervened to counter rapid 
exchange rate movements. The average exchange rate through the first 
eight months of 2001 was 121 yen per dollar, compared to 107 yen per 
dollar in 2000. A new Foreign Exchange Law in April 1998 decontrolled 
most remaining barriers to cross-border capital transactions.
3. Structural Policies
    Pricing Policy: Japan has a market economy, with prices generally 
set in accordance with supply and demand. However, with high gross 
retail margins (needed to cover high fixed and personnel costs) and a 
complex distribution system, Japan's retail prices exhibit greater 
downward stickiness than in other large market economies. Some sectors, 
such as construction, are susceptible to cartel-like pricing 
arrangements, and the government can exert limited authority over 
pricing in heavily regulated sectors (e.g., transport and warehousing).
    Tax Policy: Total tax revenues as a share of the Japanese economy 
are comparable to the United States. Recent legislation reduced the 
effective corporate tax rate (combined central and local government) to 
40.9 percent, in line with other OECD countries. The maximum marginal 
rate for personal income taxes was also reduced from 65 percent to 50 
percent. There is a ``consumption tax'' (actually Value-Added Tax) of 
five percent.
    Regulatory and Deregulation Policy: Japan's economy is highly 
regulated. Although the government and business community recognize 
that deregulation is needed to spur growth, opposition to change 
remains strong among vested-interest groups, and the economy remains 
burdened by numerous national and local government regulations, which 
have the effect of impeding market access by foreign firms. Official 
regulations also reinforce traditional Japanese business practices that 
restrict competition, block new entrants (domestic or foreign), and 
raise costs. These include high telecommunications interconnection 
rates, prolonged approval processes for medical devices and 
pharmaceuticals, and restrictions on foreign lawyers. The Japanese 
government has concluded an antitrust cooperation agreement with the 
United States. However, enforcement of competition policy needs 
additional rigor.
    In June 2001, President Bush and Prime Minister Koizumi agreed on a 
Regulatory Reform and Competition Policy Initiative as part of the new 
U.S.-Japan Economic Partnership for Growth. During its first year, the 
Initiative will establish four sectoral working groups to promote 
deregulation in the telecommunications, information technology, energy, 
and medical devices/pharmaceutical sectors. An additional ``cross-
sectoral'' working group will address topics that have widespread 
impact on the economy, including competition policy, transparency in 
government rule-making, legal reform, commercial code issues, 
distribution, customs' clearance procedures, business facilitation, and 
other cross-sectoral issues not directly addressed in the sectoral 
working groups.
4. Debt Management Policies
    Japan is the world's largest net creditor. The Bank of Japan's 
foreign exchange reserves exceed $270 billion. It is an active 
participant together with the United States in international 
discussions of developing-country indebtedness issues in a variety of 
fora.
5. Significant Barriers to U.S. Exports
    Japan is the United States' third largest export market, after 
Canada and Mexico. The United States is the largest market for Japanese 
exports. However, in many sectors U.S. exporters continue to have 
incomplete access to the Japanese market. While Japan has reduced its 
formal tariff rates on most imports to relatively low levels, it has 
maintained non-tariff barriers, such as nontransparent regulations and 
government procedures, discriminatory standards, and exclusionary 
business practices. Japan also tolerates a business environment that 
protects established companies and restricts the free flow of 
competitive foreign goods into the Japanese market.
    Transportation: In January 1998, the United States and Japan 
concluded a new agreement to significantly liberalize the trans-Pacific 
civil aviation market. This eliminated many restrictions and resolved a 
dispute over the rights of longtime carriers to fly through Japan to 
other international destinations. It opened doors for carriers that had 
recently entered the U.S.-Japan market, more than doubling their access 
to Japan. The agreement also allowed code sharing (strategic alliances) 
between American and Japanese carriers for the first time, thereby 
greatly increasing their operational flexibility. While U.S. carriers 
have been generally happy with the results of the 1998 agreement, 
scarcity of slots at Narita airport, along with expensive and 
inadequate facilities, have limited carriers' ability to use new 
traffic rights.
    U.S.-flag vessels serving Japanese ports have long encountered a 
restrictive, inefficient and discriminatory system of port 
transportation services, which prevents foreign shippers from handling 
their own cargos. After the Federal Maritime Commission (FMC) ruled in 
1997 that Japan maintained unfair shipping practices and imposed fines 
against Japanese ocean freight operators, the Japanese Government 
pledged to grant foreign carriers port transport licenses and to reform 
the Japan Harbor Transport Association's prior consultation system, 
which effectively allocates stevedoring work and restricts new 
entrants. The revised Port Transportation Business Law, which went into 
effect in November 2000, mandated that new entrants maintain staffing 
at 150 percent of current minimums. The FMC continues to monitor the 
situation.
    Energy: The government of Japan has taken a number of steps to 
begin deregulating its energy sector, including allowing companies with 
captive power assets to market excess generating capacity to major 
factories and other major users in March 2000. Within the Regulatory 
Reform and Competition Policy Initiative under the U.S.-Japan Economic 
Partnership for Growth framework, the U.S. government is encouraging 
Japan to speed up the process and create a more transparent and 
competitive environment for new entrants into the energy market. Open 
and non-discriminatory access to electrical transmission and 
distribution grids, and to LNG terminals and pipelines, are key steps 
for Japan. Competitive, transparent pricing also remains as an 
important unresolved issue in the Japanese market.
    Agricultural and Wood Products: Japan is the largest export market 
for U.S. farm and wood products. Sales are limited, however, by a 
variety of protectionist measures maintained by the government of 
Japan. Key priorities for trade liberalization include tariff reduction 
on raw and value-added products, elimination of unnecessary plant 
quarantine measures, more market oriented domestic farm policies, 
recognition of certification on organic foods and wood products, a 
commitment to science-based policies and education programs on foods 
produced through biotechnology, and continued deregulation of the 
housing sector affecting access for wood products.
    Tariff Reduction: Significant tariff reduction in Japan was 
achieved through the Uruguay Round Agreement, but agricultural tariffs 
in Japan remain high, ranging from 10 to 40 percent on a wide variety 
of items, including beef, oranges, and many processed foods. Tariffs on 
processed wood products place additional costs on end-users. These 
tariffs limit sales of U.S. farm products by encouraging substitution 
and/or reducing consumption altogether.
    Plant Protection and Quarantine Measures: Japan's failure to adopt 
system-wide sound scientific plant protection principles restricts 
entry of a wide variety of U.S. fresh fruits and vegetables. FAS/Japan 
estimates that unnecessary plant quarantine restrictions and 
requirements cost U.S. agriculture more than $500 million in lost sales 
opportunities every year. Japan unnecessarily restricts imports through 
outright bans on many products without sufficient scientific evidence 
that entry of the product presents a legitimate threat to local 
agriculture. Unnecessary testing and inspection requirements raise 
costs and reduce competitiveness of U.S. produce in Japan. In addition, 
failure to accept alternatives to methyl bromide fumigation for control 
of pests and unnecessary fumigation requirements for common pests that 
are already found in Japan present additional barriers to U.S. 
agricultural products.
    Standards, Testing, Labeling and Certification: Standards, testing, 
labeling and certification problems hamper market access in Japan. In 
some cases, advances in technology, products, or processing make 
Japanese standards outdated and restrictive. Domestic industry often 
supports standards that are unique and restrict competition, although 
in some areas external pressure has brought about the simplification or 
harmonization of standards to comply with international practices.
    Biotechnology: Japan has adopted a scientific approach in its 
approval process for genetically modified (GM) foods. To date, the 
Ministry of Agriculture and Ministry of Health, Labor and Welfare, 
which regulate biotechnology products, have approved the importation of 
more than 30 GM plant varieties, including corn, potatoes, cotton, 
tomatoes, and soybeans. While U.S. and Japanese regulatory approaches 
to assessing safety of biotech products have been closely aligned, the 
United States is very concerned by Japan's decision to implement 
mandatory labeling of 24 whole and semi-processed foods made from corn 
and soybeans beginning April 2001.
    Accreditation for Wood and Organic Certifiers: In July 1999, the 
Japanese Agricultural Standard Law was amended to include a procedure 
to establish the ``equivalency'' of foreign countries' regulations, a 
prerequisite for U.S. certification organizations for wood and organic 
products to apply for accreditation by the Ministry of Agriculture, 
Forestry and Fisheries (MAFF). This time-consuming, two-step process is 
required to put them on equal footing with their Japanese counterparts.
    Rationalization of Building Standards Laws: The Japanese government 
has taken steps to make the Building Standard Law (BSL) performance-
based, in line with its commitment to implement performance-based 
codes. Timely approval, acceptance, and ultimately sales of U.S. wood 
products are still limited by excessive regulation and continued 
reliance on prescriptive codes/standards. The United States has asked 
the Japanese government to review certain provisions of the BSL which 
are overly prescriptive or inconsistent, including fire test 
requirements and restrictions on the construction of special buildings.
    In housing policy, Japan has taken limited steps to make the sector 
more competitive and to make a greater variety of housing available to 
consumers at lower cost.
    Telecommunications and Broadcasting: Japan is a signatory of the 
WTO Basic Telecommunications Agreement of 1997, which promotes market 
access, investment and pro-competitive regulation in the 
telecommunications industry. In recent years, the United States has 
pushed Japan to foster a more pro-competitive regime in the 
telecommunications sector. As a result of the July 2000 U.S.-Japan 
agreement to implement significant reductions in interconnection fees 
for connecting to the dominant carriers' local networks, competition 
has slowly begun to enter the telephone service market. In June 2001, 
the Ministry of Public Management, Home Affairs, Post and 
Telecommunications (MPHPT) revised the Telecom Business Law and 
introduced dominant carrier regulation. However, progress has been 
incremental and access to the telecommunications' and broadcasting 
market in Japan remains constrained by both regulatory and anti-
competitive practices. New entrants continue to face higher costs and 
longer waiting periods for connecting to the dominant carriers' local 
network than in other advanced countries, deterring competition. In 
addition, new carriers' difficulty in gaining access to facilities and 
land to build their networks, government restrictions on combining 
owned and leased facilities in creating a network, and the lack of 
access to discrete portions of the local dominant carriers' network at 
reasonable costs have slowed and raised the costs of new carriers' 
entrance. It is still difficult for competing carriers to resolve 
problems with dominant carriers under the existing administrative 
framework.
    The United States remains very concerned by the fact that the MPHPT 
and the Japan Fair Trade Commission are within the same agency and 
recommends that Japan change the organizational status of the JFTC to 
an independent agency under the Cabinet Office. Furthermore, the United 
States continues to urge Japan to establish a strong independent 
regulator for the telecom business.
    Foreign computer and telecommunications equipment suppliers 
continue to have difficulty selling to the Japanese public sector and 
have a very small share of the market. Procurement from foreign sources 
by the Nippon Telegraph and Telephone (NTT) group companies, which 
collectively are the largest purchaser of telecommunications' equipment 
in Japan, remain below the level of foreign procurement by Japanese 
private sector telecommunications' carriers. Foreign investment in NTT 
and radio/television broadcasting companies is restricted.
    The U.S. government believes that mandatory labeling stigmatizes 
foods derived through biotechnology by suggesting a health risk when 
there is none. In response to labeling requirements, many Japanese 
manufacturers of products subject to mandatory labeling have switched 
to non-genetically engineered ingredients; this shift adds to confusion 
and misperceptions about the safety of biotech foods. The U.S. 
government agrees that labeling is necessary when there are health or 
safety reasons, such as a presence of an allergen, or changes in food 
characteristics, such as altered nutritional content. In these cases, 
the specific change, rather than the process by which it is produced, 
should be the subject of labeling.
    The government of Japan has stated that the objective of extending 
a mandatory labeling requirement to food that has been produced through 
biotechnology is to provide information to the consumer. The U.S. 
government agrees that it is important for consumers to have 
information on foods that have been genetically engineered, and 
believes there are a number of means other than labeling, such as 
educational materials and public fora, that can collectively provide 
more meaningful information to consumers on genetic engineering.
    Effective April 1, 2001, all U.S. certified organic foods must be 
certified by organizations accredited by the Ministry of Agriculture in 
order to be marketed as ``organic.'' The USDA's ISO Guide 65 
accreditation program provides sufficient assurance that certified 
products meet Japanese standards. Since ISO Guide 65 is the 
internationally recognized norm for conformity assessments of third-
party certifiers, additional accreditation is unnecessary, costly, and 
threatens continued imports of U.S. organic foods, estimated at up to 
$100 million per year.
    Foreign Direct Investment (FDI): FDI in Japan has remained 
extremely small in scale relative to the size of the economy. In Japan 
fiscal year 2000, Japan's annual inward FDI totaled $28 billion (up 
from $21.5 billion the previous year), but still only 0.6 percent of 
its GDP. (Comparatively, FDI for the U.S. in 1999 was $276 billion, 
according to UN Conference on Trade and Development.) Although foreign 
investment in Japan is on the rise, Japan continues to attract the 
smallest amount of FDI as a proportion of total output of any major 
OECD nation (0.9 percent), reflecting the high costs of doing business 
(for example, registration, licenses, land prices and rents) and a 
continuing environment of structural impediments to foreign investment. 
The challenges facing foreign investors include: laws and regulations 
that hamper establishing new businesses and acquiring existing 
businesses, close ties between government and industry, informal 
exclusive buyer-supplier networks and alliances, and extensive cross-
shareholding by Japanese firms.
    Recently, the Japanese Government has implemented potentially 
useful measures for increasing FDI, including a comprehensive revision 
of its Commercial Code. However, further revisions are needed to ensure 
a corporate regulatory environment, which allows existing Japanese 
companies to efficiently restructure, promote the development of new 
companies, and facilitate foreign firms' entry into the Japanese 
market. In 2002, the Japanese Diet will consider allowing firms to 
choose American-style board committees with a majority of outside 
members instead of statutory auditors (kansayaku). This could greatly 
improve corporate governance, management accountability to 
shareholders, and the attractiveness of investing in Japan. Japan has 
made significant improvements in accounting standards by introducing: 
consolidated accounting, FY 1999; pension accounting, requiring 
disclosure of assets and liabilities, and mark-to-market accounting for 
traded securities, FY 2000; and mark-to-market accounting for cross-
held shares and other long-term holdings, FY 2001. However, the 
Ministry of Finance has yet to approve consolidated taxation, which 
would allow companies to use restructuring losses in one unit to 
balance profits in another unit.
    There are insufficient numbers of qualified lawyers, accountants, 
and other professional service providers in Japan, a significant 
barrier to investment and to corporate and debt restructuring. The 
number of qualified legal professionals in Japan is inadequate to 
support the many complex transactions necessary for restructuring 
Japan's economy. Additionally, Japan places severe limitations on the 
relationships permitted among Japanese lawyers and registered foreign 
lawyers.
    In October 2001, the United States and Japan launched an Investment 
Initiative to accelerate the pace of U.S. FDI in Japan and thus 
contribute to economic growth, job creation, and the introduction of 
new management practices. A new Investment Group will meet several 
times yearly and sponsor further measures to improve the investment 
environment in Japan.
    Government Procurement Practices: Japan is a party to the 1996 WTO 
Government Procurement Agreement. While government procurement in Japan 
at the national, regional and local levels generally conforms to the 
letter of the WTO agreement, there have been reports that established 
domestic competitors continue to enjoy preferential access to tender 
information from some procuring entities. In some sectors unfair 
pricing remains a problem, preventing companies from winning contracts 
based on open and transparent bidding procedures. Some entities 
continue to draw up tender specifications to favor a preferred vendor, 
using design-based specifications rather than more neutral performance-
based specifications.
    Customs Procedures: The Japanese Customs Authority has made 
progress in automating its clearing procedures, and efforts are 
underway to integrate the procedures of other government agencies over 
the next several years. However, U.S. exporters still face relatively 
slow and burdensome processing. The Japanese government should adapt 
customs clearance procedures to accommodate the rapid growth of express 
cargo carriers.
6. Export Subsidies Policies
    In 2000, Japan remained the world's top aid donor for the tenth 
consecutive year, disbursing a total of $13.1 billion in official 
development assistance (ODA), representing about one-quarter of the 
total ODA of the advanced industrial countries. Although Japan had been 
moving towards untying its aid, during recent years this trend has 
reversed. Both Environmental Aid loans and Special Yen loans are tied 
to the purchase of Japanese products. This limits U.S. firms' ability 
to participate in these projects and denies recipient countries the 
opportunity to use aid as efficiently as possible. The U.S. government 
has opposed the trend towards retying and continues to address U.S. 
industry concerns that feasibility studies funded by Japanese grant 
aid, and tied to the use of Japanese firms, result in technical 
specifications that unduly favor Japanese firms.
7. Protection of U.S. Intellectual Property Rights
    Japan is a party to the Berne and Universal Copyright Conventions, 
the Paris Convention on Industrial Property, the Patent Cooperation 
Treaty, and the WTO Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPs). Japan was removed from the Special 301 Watch 
List on May 1, 2000. However, in the May 2001 Special 301 announcement, 
the United States expressed concern about some aspects of intellectual 
property rights protection in Japan and noted that it would continue to 
carefully monitor these aspects.
    While Japan's IPR regime affords national treatment to U.S. 
entities, the U.S. government has been concerned by the long processing 
time for patent examination. Recent statistics show that it takes the 
Japan Patent Office an average of 21 months to respond to an applicant 
(First Action Period), longer than in other industrialized countries. 
Since all patent applications are opened to public inspection 18 months 
after filing, this exposes applications to lengthy public scrutiny with 
the potential of limiting legal protection.
    Many Japanese companies use the patent filing system as a tool of 
corporate strategy, making many applications to cover slight variations 
in technology. However, a February 1998 decision by Japan's Supreme 
Court to permit an infringement finding under ``the doctrine of 
equivalence'' may reduce this practice and is a positive step toward 
broadening Japanese courts' generally narrow interpretation of patent 
rights. The rights of U.S. subscribers in Japan can be circumscribed by 
filings of applications for similar inventions or processes.
    Japan's protection of trade secrets is inadequate. Because Japan's 
Constitution prohibits closed trials, the owner of a trade secret 
seeking redress may find the secret disclosed as part of the judicial 
process. While a recent amendment to Japan's Civil Procedures Act 
excludes Japanese court records containing trade secrets from public 
access, court proceedings remain open to the public and neither the 
parties nor their attorneys have confidentiality obligations.
    Trademarks must be registered in Japan to ensure enforcement, 
meaning delays make it difficult for foreign parties to enforce their 
marks. However, Japan is a party to the Madrid Protocol for centralized 
foreign trademark registration. Japan's Trademark Law was revised in 
1997 to speed the granting of trademark rights, strengthen protection 
to well-known trademarks, address problems related to unused 
trademarks, simplify registration procedures, and increase infringement 
penalties. The First Action Period for trademark applications takes 
about eleven months. The United States will continue monitoring Japan's 
approval time.
    End-user software piracy remains a major concern of United States 
and some Japanese software developers. Effective January 2001, Japan 
raised the level of punitive damages for software piracy from 3 million 
yen to 100 million yen. However, Japan still does not protect temporary 
copies, a requirement of the Berne Convention and the 1996 WIPO 
Copyright Treaty.
    The absence of a system of statutory damages is also a problem. 
Under the Japanese system, right holders need to prove actual loss in 
order to qualify for compensation from violators. Protection would be 
improved under a system where right holders only need to prove the loss 
and could be awarded damages within a fixed range for each work 
violated.
8. Worker Rights
    a. The Right of Association: Japan's Constitution and domestic 
labor law provide for the right of workers to freely associate in 
unions. 21.5 percent of Japan's labor force is unionized. The Japanese 
Trade Union Confederation (RENGO), which represents 7.2 million 
workers, is the largest labor organization. Both public and private 
sector workers may join a union, although members of the armed forces, 
police, and firefighters may neither form unions nor strike. The right 
to strike, although implicit in the constitution, is seldom exercised. 
The law prohibits retribution against strikers and is effectively 
enforced.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides unions with the right to organize, bargain, and act 
collectively. These rights are freely exercised, and collective 
bargaining is practiced widely, particularly during the annual ``Spring 
Wage Offensive'' of nationwide negotiations.
    c. Prohibition of Forced or Compulsory Labor: Article 18 of the 
Japanese Constitution states that ``No person shall be held in bondage 
of any kind. Involuntary servitude, except as punishment for crime, is 
prohibited.'' This provision applies both to adults and children, and 
forced or bonded labor is not perceived as a problem. Japan is, 
however, a destination country for the trafficking of women for 
prostitution through debt bondage.
    d. Minimum Age for Employment of Children: By law, children under 
the age of 15 may not be employed, and those under age 18 may not work 
in dangerous or harmful jobs. Child labor is virtually non-existent in 
Japan, as societal values and the rigorous enforcement of the Labor 
Standards Law protect children from exploitation in the workplace.
    e. Acceptable Conditions of Work: Minimum wages are set on both a 
sectoral and regional (prefectural) level. Minimum wages range from 
about $18 per hour in Tokyo to $11 in rural northern Japan. The Labor 
Standards Law provides for a 40-hour work week in most industries and 
mandates premium pay for hours worked beyond 40 hours in a week or 
eight hours in a day. However, labor unions criticize the Japanese 
Government for failing to enforce working hour regulations in smaller 
firms. The government effectively administers laws and regulations 
affecting workplace safety and health.
    f. Worker Rights in Sectors with U.S. Investment: Labor 
regulations, working conditions and worker rights in sectors where U.S. 
capital is invested do not vary from those in other sectors of the 
economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  (\1\)
Total Manufacturing.........  ...........  15,173
  Food & Kindred Products...  1,232        .............................
  Chemicals & Allied          2,843        .............................
   Products.
  Primary & Fabricated        330          .............................
   Metals.
  Industrial Machinery and    1,581        .............................
   Equipment.
  Electric & Electronic       2,033        .............................
   Equipment.
  Transportation Equipment..  2,391        .............................
  Other Manufacturing.......  4,764        .............................
Wholesale Trade.............  ...........  4,689
Banking.....................  ...........  733
Finance/Insurance/Real        ...........  20,685
 Estate.
Services....................  ...........  8,646
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  55,606
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                           REPUBLIC OF KOREA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (nominal/factor cost).........      405.8       457.4       434.5
  Real GDP Growth (pct) \2\.........       10.9         8.8         2.7
  GDP by Sector:
    Agriculture/Fisheries...........       20.7        21.0        21.1
    Manufacturing...................      124.6       144.1       135.1
    Electricity/Gas/Water...........       11.0        12.8        11.9
    Construction....................       35.3        37.5        36.7
    Financial Services..............       74.3        81.4        78.4
    Government Services.............       40.6        45.3        43.2
    Other...........................       99.4       115.3       108.0
  Government Expenditure (pct/GDP)..       10.4        10.2        10.3
  Per Capita GNI (US$)..............      8,551       9,628       9,019
  Labor Force (000s)................     21,634      21,950      22,270
  Unemployment Rate (pct)...........        6.3         4.1         3.9
 
Money and Prices (annual percentage
 rate):
  Money Supply (M2).................       27.9        30.2        33.3
  Corporate Bonds \3\...............       9.85        8.12        7.10
  Personal Savings Rate.............        4.2        23.0        22.6
  Retail Inflation..................        0.8         2.3         4.6
  Wholesale Inflation...............       -2.1         2.0         2.6
  Consumer Price Index (1995 base)..      118.8       121.5       127.1
  Average Exchange Rate (Won/US$)...    1,189.5     1,130.6     1,285.0
 
Balance of Payments and Trade:
  Total Exports FOB \4\.............      145.2       175.8       159.1
    Exports to United States \4\....       29.5        37.6        31.8
  Total Imports CIF \4\.............     -116.8      -159.2      -143.6
    Imports from United States \4\..      -24.9       -29.2       -25.8
  Trade Balance.....................       28.4        16.6         8.6
    Balance with the United States..        4.6         8.4         6.0
  External Debt \5\.................      137.1       136.3       117.7
  Debt Service Payments \6\.........      -45.4       -25.0       -35.3
  Gold and Foreign Exchange Reserves       74.1        96.2       100.0
   \7\..............................
  Aid from the United States........          0           0           0
  Aid from All Other Sources........          0           0           0
------------------------------------------------------------------------
\1\ 2001 figures are estimates based on available monthly data and the
  economic forecasts made by local research institutes as of September
  5.
\2\ Growth based on won the local currency.
\3\ Figures are average annual interest rates.
\4\ Merchandise trade, measured on customs clearance basis; Korean
  government data. (Estimated figures are for the entire year 2001).
\5\ Gross debt; includes non-guaranteed private debt. 2001 figure is an
  estimate based on available monthly data as of July.
\6\ Note that the Government of the Republic of Korea does not release
  such data, so the 2001 figure is an estimate based on available
  related data as of September 14.
\7\ 2001 figure is as of the end of September 2001.


1. General Policy Framework
    In 2001, Korean economic conditions continued to worsen due to the 
triple distress of weakened global economic conditions (and related 
falls in Korea's exports), a severe slump in microchip/computer demand 
and prices, and low levels of Korean corporate fixed investment. The 
September 11, 2001, terrorist attacks in New York and Washington added 
stress to an already gloomy economic picture in 2001. Real annual 
average economic growth rate is not expected to exceed 2 percent, with 
inflation expected in the 4-5 percent range. Increased uncertainty in 
the economy could further dampen domestic consumption and investment. 
In the near term, decreasing exports of IT products and depressed 
consumer sentiment in industrialized countries will likely hamper the 
recovery of Korean exports in the near term. Recovery could come by the 
second quarter of 2002, at the earliest.
    The economic downturn contrasts sharply with Korea's 1999 and 2000 
rebound, when economic growth rose sharply from the unprecedented 1997-
98 economic crisis. Buoyant domestic consumption and investment and a 
surge in exports to buoyant international markets mainly led the rally. 
During those years, Korea's gross domestic product (GDP) grew 10.9 
percent and 8.8 percent respectively in real terms, propelled by strong 
recoveries in principal industrial sectors, decisively reversing 1998's 
6.7 percent contraction, Korea's worst performance since the Korean 
War. GDP growth was particularly impressive in Q4 1999, 14.2 percent, 
and Q1 2000, 12.0 percent.
    Korea's economic recovery from the 1997-98 crisis was impressive 
but still is not firm or assured. Long-term success will depend on 
continued financial and corporate-sector restructuring to encourage a 
high pace of productive domestic and foreign direct investment. 
Otherwise, existing high levels of domestic corporate debt could 
threaten economic performance with the impact of significant 
bankruptcies.
    Korea's 1997-98 financial crisis coincided with the election and 
inauguration of President Kim Dae-jung. President Kim gave decisive 
support to a $58 billion International Monetary Fund (IMF) package, 
which he saw as Korea's best way out of the crisis. The package 
included loans from the IMF, World Bank, and the Asia Development Bank. 
Under the IMF program, the government took steps to open its financial 
and equity markets to foreign direct and portfolio investment and to 
reform and restructure its financial and corporate sectors to increase 
transparency, accountability and efficiency.
    The United States is a leading Korean trade partner, taking 22 
percent of Korea's exports and providing 20 percent of Korea's imports 
for the first eight months of 2001. Korea exports advanced electronic 
components and telecommunications equipment, automobiles, steel, and a 
wide variety of mid-level, medium-quality consumer electronics and 
other goods.
    In the early 1990s, wages rose faster than productivity and Korea 
lost its low-wage labor advantage to China and Southeast Asia. At the 
same time, Korea faced tough competition from Japan and other advanced 
countries in exporting cutting-edge, high-tech products. Through 
September 30, the average value of the Korean currency, the won, has 
been around 1,285 won per dollar. Korea's useable foreign currency 
reserves grew to over $100 billion by September 2001, which 
significantly reduced Korea's vulnerability to a repeat of the 1997-98 
financial crisis, when Korea nearly exhausted its foreign exchange 
reserves. Nonetheless, the trade surplus continues to narrow, as 
exports have decreased faster than imports. The Korean government has 
revised its trade surplus estimate for 2001 to $12 billion, from its 
previous estimate of $13 billion.
2. Exchange Rate Policy
    Since the IMF program began in December 1997, foreign exchange and 
capital controls have been greatly relaxed or abolished. In conjunction 
with IMF program requirements, the exchange rate has been allowed to 
float (with Bank of Korea intervention nominally limited to smoothing 
operations only).
3. Structural Policies
    In response to the 1997 financial crisis, the government has 
required greater corporate transparency, fostered the development of 
small- and medium-sized industries and implemented broad-based reforms 
of the financial system. The financial reforms include substantial 
liberalization of capital markets, and abolishing restrictions on 
foreign ownership of domestic stock shares and bonds and on the use of 
deferred payments to finance imports. Foreign banks can now establish 
subsidiaries in Korea, and foreign financial firms can participate in 
mergers and acquisitions of domestic Korean financial institutions.
    Certain regulations may disadvantage foreign bank branches. For 
instance, Korea requires foreign branches to be separately capitalized; 
also, prudential lending limits are based on local branch capital as 
opposed to a foreign bank's total worldwide capital, while domestic 
banks may count their entire capital base as assessed capital. Foreign 
banks are also disadvantaged in access to local-currency lending. The 
April 1999 Foreign Exchange Transaction Law, fully implemented at the 
end of 2000, significantly liberalized formerly heavily regulated 
capital transactions.
    Korea's 1998 Foreign Investment Promotion Act streamlined foreign 
investment application procedures and eased barriers to foreign direct 
investment across a range of sectors. Korea now has a much more 
favorable climate for foreign direct investment (FDI). In the long run, 
increased openness to FDI should foster broader market access for 
imported goods. FDI levels for the two years 1998 and 1999 exceeded the 
total FDI that Korea received during the previous 37 years (1960-1997). 
In 2000, FDI was at the 1999 level, but has fallen somewhat in 2001. 
Investment restrictions remain on 21 industrial sectors, of which only 
seven are entirely closed. Mergers, including hostile acquisitions, are 
permitted, and most restrictions on foreign ownership of local shares 
have been lifted. For the first time in modern Korean history, 
foreigners now may purchase property and real estate. Tax incentives, 
especially for the high technology sector, have been increased, but 
restrictions on access to offshore funding (including offshore 
borrowing, intra-company transfers and inter-company loans) continue to 
be burdensome. Foreign equity participation limits, licensing 
requirements and other regulatory restrictions can limit FDI in sectors 
nominally open to foreigners. Foreign firms also face additional 
investment restrictions in many professional services sectors. The 
United States and Korea are negotiating these and other investment 
issues in the effort to conclude a bilateral investment treaty (BIT).
4. Debt Management Policies
    At the end of July 2001, Korea's total foreign debt (largely 
private sector) totaled $125 billion, down from $136 billion in 
December 2000. By the end of July 2001, Korea's short-term debt as a 
percentage of total foreign debt was 31.2 percent, down from 32.4 
percent at the end of 2000.
5. Significant Barriers to U.S. Exports
    During the 1990s, Korea steadily liberalized its markets for goods 
and services and substantially improved its investment climate for U.S. 
firms. Many protective tariffs were lowered or phased out as a result 
of bilateral negotiations, Uruguay Round commitments and other 
multilateral efforts. Various nontransparent policies and regulations, 
which directly or indirectly inhibited market access for imports, were 
clarified or eliminated. The government rejected explicit policies that 
encouraged anti-import sentiment among Korean consumers, and its 
efforts to address residual anti-import biases among Korean consumers, 
media and bureaucrats have started to have some meaningful impact. 
Introduced in late 1998, the new foreign investment regime is aimed at 
attracting rather than tolerating foreign investment; total foreign 
investment in 2001 is expected to reach $15 billion for the third 
straight year. The net effect of these changes is that Korea is now an 
easier place to do business than in the past. Several key sectors, 
especially agricultural products, pharmaceuticals, and automobiles, 
however, are still very challenging for foreign firms. Problems also 
exist in intellectual property rights protection.
    Korea's tariffs are generally modest. However, for agricultural 
products Korea's 50.3 percent average out-of-quota tariff contrasts 
sharply with the relatively low average tariff for industrial products 
of 7.5 percent. This disparity gives some indication of the political 
sensitivity of agricultural and fishery imports, which are further 
restricted by quotas and tariff rate quotas (TRQ), as well as by the 
restrictive way that Korea administers the quotas. Several agricultural 
products of interest to U.S. suppliers, such as rice and oranges, are 
directly hindered by these policies, although Korea purchased U.S. rice 
for the first time in 2001 since agreeing to open its rice market 
during the Uruguay Round. Korea also uses adjustment tariffs to respond 
to import surges; the majority of the 27 adjustment tariffs apply to 
agricultural products. The government eliminated its import 
diversification program, which barred certain imports from Japan, in 
June 1999 and its eight remaining GATT balance-of-payments restrictions 
at year-end 2000.
    Nontariff barriers, which often result from non-transparent 
regulatory practices, continue to inhibit imports to Korea across a 
range of sectors. A lack of regulatory transparency and consistency can 
affect licensing, inspections, type approval, marking/labeling 
requirements and other standards. To improve transparency and due 
process to its regulatory system, in 1996, Korea enacted the 
Administrative Procedures Act, but public notice of new regulations, as 
well as comment and transition periods, are still not always adequate. 
The regulatory system does not consistently offer adequate recourse to 
those adversely affected by creation of new regulations. In 1998 a 
comprehensive effort at regulatory reform was initiated at the request 
of President Kim; thousands of regulations have been reviewed and many 
eliminated, but the impact on doing business has not been significant.
    Products regulated for health and safety reasons (such as 
pharmaceuticals, processed foods, medical devices, and cosmetics) 
typically require additional testing or certification from relevant 
ministries before they can be sold in Korea, resulting in considerable 
delays and increasing costs. Although new reimbursement pricing and 
product approval systems were recently put into place, the Korean 
health authorities have attempted to make changes to the system that 
will disadvantage foreign producers, generally without consultation or 
an adequate public comment period. As a result, the foreign 
pharmaceutical industry continues to face discriminatory barriers in 
Korea. Registration requirements for such products as chemicals, 
processed food, medical devices, and cosmetics hamper entry into the 
market as well. It has committed to bring its Food Code, Food Additive 
Code and labeling requirements into conformity with international 
standards, and has taken some steps to do so. Import clearance, 
however, still takes longer than in other Asian countries.
    Despite potential conflict-of-interest problems, the government has 
delegated authority to some Korean trade associations to carry out 
functions normally administered by the government. Such delegation of 
responsibility may include processing import approval documentation 
prior to customs clearance (allowing local trade associations to obtain 
business confidential information on incoming shipments), advertisement 
pre-approvals (providing early warning on the introduction of new 
products and on competitors' marketing efforts), and a decision-making 
seat on various committees (usually not available to foreign firms). 
The Korea Fair Trade Commission has made some efforts to reduce the 
quasi-legal, trade restrictive powers of a number of associations.
    While the Korean government made some effort to improve the market 
environment for foreign automobiles, including President Kim's March 
2001 statement encouraging Koreans to buy foreign cars, Korea's 
automobile market remains effectively closed to foreign imports with 
only 4,414 imported cars sold in 2000. Pursuant to the October 1998 
U.S.-Korea Memorandum of Understanding (MOU) on motor vehicles, Korea 
lowered some taxes that had a discriminatory impact on imported cars, 
bound its auto tariffs at eight percent, improved consumer financing of 
autos, and streamlined standards and certification. These steps have 
yet to have a meaningful impact. We have called on Korea to further 
reduce the tariff and tax burden on motor vehicle owners as called for 
in the MOU, to effectively counter the years of government-sponsored 
ant-import campaigns, and to improve consumer perception of foreign 
motor vehicles. In 2001, Korean imports of U.S. and other foreign cars 
are expected to barely exceed 8,000 units, far less than one percent of 
the domestic market.
    The government requires theaters to show local movies for a minimum 
of 146 days each year, with some flexibility so that this total can be 
reduced to 106 days. The quota acts as a deterrent to imported films, 
cinema construction, and the expansion of theatrical distribution. The 
Korean government, however, considers this a cultural rather than a 
trade issue.
    Korea is a party to the WTO Government Procurement Agreement (GPA).
    In January 2001, Korea removed most of the remaining non-tariff 
barriers on beef imports, with the notable exception of the dual retail 
distribution system separating domestic and imported beef, state 
trading and overly strict sanitary requirements. On September 10, 2001, 
Korea implemented the WTO Dispute Settlement Board (DSB) 
recommendations to remove the dual retail system, which controlled 
distribution of beef in the marketplace. In its stead Korea will impose 
a new record-keeping system applicable to all meat products effective 
January 1, 2002.
6. Export Subsidies Policies
    In the past, Korea has aggressively promoted exports through a 
variety of policy tools, including export subsidies, directed credit 
and targeted industrial policies. While Korea has eliminated WTO-
prohibited subsidies, concerns remain about subsidization in a variety 
of important sectors, such as shipbuilding, steel and semiconductors. 
In particular, apparent government subsidization of Hynix 
Semiconductor, Inc. (formerly Hyundai Electronics, Inc.) through 
various state-sponsored credit guarantees, a Korea Development Bank 
financing program, and influence over the lending decisions of key 
Hynix creditor banks have recently renewed concerns about inappropriate 
government intervention in the market place and retrenchment on 
financial and corporate reforms.
7. Protection of U.S. Intellectual Property
    Korea is a participant in the WTO's Agreement on Trade Related 
Aspects of Intellectual Property (TRIPS). It is also a signatory to the 
World Intellectual Property Organization (WIPO), the Universal 
Copyright Convention, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms, the Geneva Phonograms 
Convention, the Paris Convention for the Protection of Industrial 
Property, and the Patent Cooperation Treaty. Korea joined the Berne 
Convention in August 1996.
    Korean laws protecting IPR and related enforcement measures can be 
problematic. Korea's Special 301 ``Priority Watchlist'' status was 
maintained in April 2001. Areas of continuing IPR concern include: 
protection of clinical drug test data, pre-existing copyrighted works 
and pharmaceutical patents, lack of coordination between Korean health 
and IPR authorities on drug product approvals for marketing; and 
counterfeit consumer products. The United States also has ongoing 
concerns about the consistency, transparency, and effectiveness of 
Korean enforcement efforts, particularly with regards to piracy of U.S. 
computer software and books.
    Korean patent law is quite comprehensive, offering protection to 
most products and technologies. However, it does not provide for 
effective pharmaceutical patent protection, and approved patents of 
foreign patent holders are still seen as vulnerable to infringement. 
Likewise, U.S. industry believes that Korean courts are deficient in 
terms of treatment and interpretation of its claims.
    Since the early 1990s, the government's protection of trademarks 
has improved. A revised Trademark Law became effective March 1, 1998. 
The Design Act was also revised on March 1, 1998, enhancing protection 
of industrial designs. The granting of a trademark under Korean law is 
based on a ``first-to-file'' basis. While preemptive and predatory 
filings are on the decline, ``sleeper'' preemptive registrations still 
surface on occasion. The Korean Industrial Property Office (KIPO) is 
able to reject suspected predatory applications based on a ``bad 
faith'' clause. There has been less success in stemming the export of 
Korean counterfeit products globally.
    The Patent Utility, Industrial Design and Trademark laws were 
revised more recently to make it easier to establish damage amounts and 
adjust penalty provisions up to KRW 100 million (just under $100,000) 
fine or seven years' imprisonment. The Unfair Competition and Trade 
Secret Protection laws were also amended to enhance the protection of 
well-known trademarks. Korea's Copyright Act protects an author's 
rights, but local prosecutors take no action against infringement 
unless the copyright holder files a formal complaint. Recently, Korea 
amended its Computer Programs Protection Act (again). However, there 
are continuing concerns regarding the temporary copies issue. The 
Copyright Act (CA) has also been revised to meet the needs of the new 
information economy. Still, the CA is not in full compliance with 
provisions of the TRIPS Agreement that stipulate that preexisting works 
and sound recordings must enjoy a full term of protection (i.e., life 
of the author plus 50 years for works; 50 years for sound recordings). 
Korea now only provides protection back to 1957. In 1999 the Korean 
government devoted increased resources and staff to IPR enforcement 
activities, and President Kim himself directed cabinet agencies to 
step-up government efforts to protect intellectual property. In 2000, 
such activities dropped off precipitously, and IPR violations, 
especially of computer software, remain a problem. However, in 2001, 
President Kim Dae-jung made clear the government's determination to 
strengthen IPR enforcement activities. This was followed by vigorous 
two-month-long special enforcement period raids against more than 2,000 
suspected users of illegal computer software.
8. Worker Rights
    a. The Right of Association: Most Korean workers enjoy the right of 
free association. White-collar workers in the government sector cannot 
join unions, but since 1999 have been allowed to form workplace 
consultative councils. Blue-collar employees in the postal service, 
railways, and telecommunications sectors, and the national medical 
center have formed labor organizations. In July 1999, legislation went 
into effect allowing teachers to form unions. Unions may be formed with 
as few as two members and without a vote of the full prospective 
membership.
    Labor law changes in 1997 authorized the formation of competing 
labor organizations in individual work sites beginning in the year 
2002, but in 2001 implementation of this was postponed for five years 
by mutual agreement among members of the Tripartite Commission. Workers 
in government agencies and defense industries do not have the right to 
strike. Unions in enterprises determined to be of ``essential public 
interest,'' including utilities, public health, and telecommunications, 
may be ordered to submit to government-ordered arbitration in lieu of 
striking. However, work stoppages occur even in these sensitive 
sectors. The Labor Dispute Adjustment Act requires unions to notify the 
Labor Ministry of their intention to strike, and normally mandates a 
10-day ``cooling-off period'' before a work stoppage may legally begin.
    b. The Right to Organize and Bargain Collectively: The Korean 
constitution and the Trade Union Law provide for the right of workers 
to bargain collectively and undertake collective action, but do not 
grant government employees, school teachers or workers in defense 
industries the right to strike. Collective bargaining is practiced 
extensively in virtually all sectors of the Korean economy. The central 
and local labor commissions form a semi-autonomous agency that 
adjudicates disputes in accordance with the Labor Dispute Adjustment 
Law. This law empowers workers to file complaints of unfair labor 
practices against employers who interfere with union organizing or 
practice discrimination against unionists. In 1998, the government 
established the Tripartite Commission, with representatives from labor, 
management, and the government to deal with labor issues related to the 
economic downturn. The work of the Commission made it legal for 
companies to lay off workers for managerial reasons, including merger 
or acquisition, or in case of financial difficulties. Labor-management 
antagonism remains, and some major employers remain strongly anti-
union.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
provides that no person shall be punished, placed under preventive 
restrictions, or subjected to involuntary labor, except as provided by 
law and through lawful procedures. Forced or compulsory labor is not 
condoned by the government and is not known to occur.
    d. Minimum Age for Employment of Children: The government prohibits 
forced and bonded child labor and enforces this prohibition 
effectively. The Labor Standards Law prohibits the employment of 
persons under the age of 15 without a special employment certificate 
from the Labor Ministry. Because education is compulsory through middle 
school (about age 14), few special employment certificates are issued 
for full-time employment. Some children are allowed to do part-time 
jobs. In order to obtain employment, children under 18 must have 
written approval from their parents or guardians. Employers may only 
permit minors to work a limited number of overtime hours and are 
prohibited from employing them at night without special permission from 
the Labor Ministry.
    e. Acceptable Conditions of Work: The government implemented a 
minimum wage in 1988 that is adjusted annually. The minimum wage as of 
August 2001 was 2100 won/hour (about $1.60/hour). Companies with fewer 
than 10 employees are exempt from this law. The maximum regular 
workweek is 44 hours, with provision for overtime to be compensated at 
a higher wage, but such rules are sometimes ignored, especially by 
small-companies. The law also provides for a maximum 56-hour workweek 
and a 24-hour rest period each week. Labor laws were revised in 1997 to 
establish a flexible hours system that allows employers to ask laborers 
to work up to 48 hours during certain weeks without paying overtime so 
long as average weekly hours do not exceed 44. Recent legislation 
authorized a five-day, forty-hour workweek, but full agreement on 
implementation and the phase-in period has not yet been reached. Due to 
an insufficient number of inspectors, the government's health and 
safety standards are not always effectively enforced, but the accident 
rate continues to decline. The number of work-related deaths and 
injuries remains high by international standards.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Korea 
is concentrated in petroleum, chemicals and related products, 
transportation equipment, processed food, manufacturing, and services. 
Workers in these industrial sectors enjoy the same legal rights of 
association and collective bargaining as workers in other industries.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  (\1\)
Total Manufacturing.........  ...........  3,954
  Food & Kindred Products...  527          .............................
  Chemicals & Allied          807          .............................
   Products.
  Primary & Fabricated        19           .............................
   Metals.
  Industrial Machinery and    336          .............................
   Equipment.
  Electric & Electronic       1,059        .............................
   Equipment.
  Transportation Equipment..  196          .............................
  Other Manufacturing.......  1,009        .............................
Wholesale Trade.............  ...........  858
Banking.....................  ...........  2,104
Finance/Insurance/Real        ...........  91
 Estate.
Services....................  ...........  510
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  9,432
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                MALAYSIA


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................    79,037     89,659     90,920
  Real GDP Growth (pct) \2\............       6.1        8.3        2.0
  GDP by Sector (1987 prices):
    Agriculture........................     4,625      4,654      4,712
    Manufacturing......................    15,200     18,386     18,423
    Mining And Petroleum...............     3,677      3,794      3,829
    Construction.......................     1,822      1,841      1,932
    Services...........................    24,331     25,620     26,639
    Government Services................     3,736      3,788      4,056
  Per Capita GDP (US$).................     3,480      3,850      3,810
  Labor Force (000s)...................     9,010      9,573      9,801
  Unemployment Rate (pct)..............       3.0        3.1        3.9
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)(pct) \3\....       1.4        5.5        3.9
  Consumer Inflation (pct).............       2.8        1.6        1.3
  Exchange Rate (RM/US$--annual              3.80       3.80       3.80
   average)............................
 
Balance of Payments and Trade:
  Total Exports FOB....................    84,097     98,429     87,754
    Exports to United States \4\.......    21,428     25,568     22,188
  Total Imports FOB....................    61,452     77,574     69,550
    Imports from United States \4\.....     9,079     10,938      9,496
  Trade Balance........................    22,645     20,855     18,204
    Balance with United States \4\.....    12,349     14,630     12,692
  External Public Debt.................    20,265     20,650     23,088
  Fiscal Surplus/GDP (pct).............      -6.0       -5.8       -6.5
  Current Account Surplus/GDP (pct)....      15.9        9.4        7.3
  Debt Service Payments/GDP (pct)......       7.5        6.3        6.5
  Gold and Foreign Exchange Reserves       30,900     29,900     29,900
   \5\.................................
  Aid from United States \6\...........       0.7        0.7      1.048
  Aid from All Other Countries.........       N/A        N/A        N/A
------------------------------------------------------------------------
Note: All data converted at annual average exchange rates.
 
\1\ Malaysian Government estimates.
\2\ Calculated in Ringgit to avoid exchange rate changes.
\3\ As of August for 2001
\4\ Annualized estimate on eight-month data from U.S. Department of
  Commerce for 2001
\5\ As of October 15 for 2001.
\6\ U.S. government assistance to Malaysia in FY2001 fell into four
  broad categories: the Trade Development Agency (TDA), approximately
  $250,000; the International Military Education Training (IMET)
  program, $700,000; the Enhanced International Peacekeeping Corporation
  Program (EIPC) $348,000; and the U.S.-Asia Environment Program (U.S.-
  AEP), $252,000.


1. General Policy Framework
    Malaysia's economy slowed dramatically in 2001 in line with the 
economic slowdown in the United States, Malaysia's chief trading 
partner. The slowdown contrasts with Malaysia's strong recovery from 
the 1997-1999 regional economic and financial crisis. In 1998 the 
economy contracted 7.4 percent but rebounded with 6.1 percent growth in 
1999 and 8.3 percent growth in 2000, based largely on strong exports of 
electronics to the United States. Although consumer and investor 
confidence improved with the recovery, aggregate domestic consumption 
and investment remained subdued. In response to the global economic 
slowdown in 2001, the government introduced two stimulus packages, 
injecting $1.9 billion in new spending to boost the economy. The 
government projects a budget deficit equal to 6.5 percent of GDP during 
2001, followed by a deficit equal to 5.0 percent of GDP in 2002.
    In 1998, the government established an asset management 
corporation, Danaharta, and a special purpose vehicle, Danamodal, to 
inject funds into banks in need of recapitalization to deal with a 
growing number of non-performing loans (NPLs) during the financial 
crisis. The government also created the Corporate Debt Restructuring 
Committee (CDRC) to provide a framework for creditors and debtors 
voluntarily to resolve liquidity problems of viable businesses and 
serve as an alternative to bankruptcy. As of June 2001, Danaharta has 
removed approximately 40 percent of the NPLs from the banking system. 
As of August 2001, CDRC has received requests for loan restructuring 
involving 62 cases with debts of $14.8 billion. CDRC leadership has 
pledged to resolve outstanding cases by August 2002.
    The government plays a strong, active role in the economy as 
investor, economic planner, approver of investment projects and public 
and private procurement decisions, as well as the author and 
implementer of domestic policies and programs. The government actively 
seeks to bolster the economic status of the Malay and indigenous 
communities (commonly referred to as bumiputera), in part through the 
awarding of privatization contracts. The government holds equity 
stakes, generally minority shares, in a wide range of domestic 
companies, usually large players in key sectors, and can exert 
considerable influence over their operations. The economic downturn, 
however, slowed the push to privatization and increased emphasis on 
government support for sensitive industries, such as automobiles, 
steel, and public transportation. The government has said it will 
consider granting assistance to troubled corporations on the basis of 
three criteria: national interest, strategic interest, and equity 
considerations under bumiputera policies.
    Tariffs are the main instrument used to regulate the importation of 
goods in Malaysia. However, 17 percent of Malaysia's tariff lines 
(principally in the construction equipment, agricultural, mineral, and 
motor vehicle sectors) are also subject to non-automatic import 
licensing designed to protect import-sensitive or strategic industries. 
According to the Ministry of International Trade and Industry, the 
average applied MFN tariff rate of Malaysia is approximately 9.18 
percent. However, duties for tariff lines where there is significant 
local production are often higher. For example, 6.8 percent have tariff 
rates between 16 and 20 percent, 16.9 percent have tariff rates that 
exceed 20 percent, and many lines have rates well over 100 percent.
    The level of tariff protection is generally lower on raw materials 
and increases for those goods with value-added content or which undergo 
further processing. The government urges Malaysians to purchase 
domestic products, instead of imports, whenever possible. In addition 
to import duties, a sales tax of 10 percent is levied on most imported 
goods. Like import duties, however, this sales tax is not applied to 
raw material and machinery used in export production. Malaysia has been 
an active participant in multilateral and regional trade fora such as 
the World Trade Organization (WTO) and APEC, which it chaired in 1998.
    Fiscal Policy: The government is pursuing an expansive fiscal 
policy in order to stimulate economic growth. In 2001, the government 
introduced two supplementary budget packages, totaling $1.9 billion in 
new spending. The 2002 budget, released October 19, provides for a 
deficit equal to five percent of GDP and features some personal income 
tax cuts along with provisions to stimulate domestic consumption and 
investment. The Malaysian government will finance the projected $4.9 
billion deficit primarily from domestic sources, although the 
government also plans an additional $950 million (net) in new foreign 
borrowings.
    Monetary Policy: The Central Bank continues its accommodative 
monetary policy, featuring low interest rates to stimulate economic 
recovery. The government loosened monetary policy in 1998, reducing 
reserve requirements from 13.5 percent as of year-end 1997 to 4 percent 
in September 1998. The average base lending rate dropped from 8.0 
percent in December 1998 to 6.8 percent in August 1999. In September 
2001 the Central Bank cut the 3-month intervention rate by 50 basis 
points to 5 percent, leading to a further drop in the base lending rate 
to 6.4 percent.
2. Exchange Rate Policy
    As part of a broad effort to stabilize the currency while 
stimulating the economy, on September 1, 1998, the government fixed the 
exchange rate of the Ringgit to the dollar at RM 3.8/$1 and instituted 
selective capital controls, including a controversial tax on 
repatriated principal and profits. The government subsequently 
abolished most capital controls, but has maintained the fixed exchange 
rate, in spite of concerns that falling foreign exchange reserves, 
between May 2000 and June 2001, could lead to a reconsideration of the 
policy.
3. Structural Policies
    Pricing Policies: Most prices are market-determined but controls 
are maintained on some key goods, such as vegetable oil, fuel, public 
utilities, cement, motor vehicles, rice, flour, sugar, tobacco, and 
chicken. No restrictions are placed on wheat imports.
    Tax Policies: Tax policy is geared toward raising government 
revenue and discouraging consumption of ``luxury'' items. Income taxes, 
both corporate and individual, comprise 44 percent of government 
revenue with indirect taxes, export and import duties, excise taxes, 
sales taxes, service taxes, and other taxes accounting for another 29 
percent. The remainder comes largely from dividends generated by state-
owned enterprises and petroleum taxes.
    The year 2002 budget focuses on stimulating domestic consumption 
and investment. The new budget marks the fifth consecutive federal 
government deficit. The budget features pump-priming measures, 
including a slight reduction in personal income taxes, lower import 
duties on over 200 products, as well as tax rebates and incentives to 
promote exports and e-businesses.
    Standards: Malaysia has extensive standards and labeling 
requirements, but these appear to be largely implemented in an 
objective, nondiscriminatory fashion. Food product labels must provide 
ingredients, expiry dates and, if imported, the name of the importer. 
Electrical equipment must be approved by the Ministry of International 
Trade and Industry; telecommunications equipment must be ``type 
approved'' by the Communications and Multimedia Commission. 
Telecommunications and aviation equipment must be approved by the 
Department of Civil Aviation. Pharmaceuticals must be registered with 
the Ministry of Health. In addition, the Standards and Industrial 
Research Institute of Malaysia provides quality and other standards 
approvals.
4. Debt Management Policies
    Malaysia has $42.7 billion in foreign debt, of which almost 90 
percent ($37.9 billion) is medium- and long-term debt (both public and 
private sector), almost all of which was granted on concessional terms. 
Short-term external debt remains low at an estimated $4.8 billion in 
2001, up slightly from the $4.6 billion registered in 2000. Malaysia's 
debt service ratio declined from a peak of 18.9 percent of gross export 
earnings in 1986 to 5.1 percent in 2000. The government estimates that 
the debt service ratio will increase to 5.8 percent in 2001.
5. Significant Barriers to U.S. Exports
    Import Restrictions on Motor Vehicles: Malaysia maintains several 
measures to protect the local automobile industry, including high 
tariffs and an import quota and licensing system on imported motor 
vehicles and motor vehicle parts. Malaysia also maintains local content 
requirements of 45 to 60 percent for passenger and commercial vehicles, 
and 60 percent for motorcycles. Arguing that the national car industry 
requires additional time to become competitive internationally as a 
result of the regional financial crisis, Malaysia has requested 
additional time before reducing or abolishing these measures. Malaysia 
has requested an additional two-year extension of the phaseout period, 
until the end of 2003, for local content requirements in selected auto 
industry sectors that are inconsistent with its obligations under the 
WTO Agreement on Trade-Related Investment Measures (TRIMS) (see 
investment barriers). Further, ASEAN has accepted Malaysia's request 
for an extension of its commitments under the ASEAN Free Trade Area 
(AFTA) to reduce tariffs in the auto sector beginning in 2000. These 
restrictions have hampered the ability of U.S. firms to penetrate the 
Malaysian market. Customs tariffs and excise duties (up to 50 percent) 
for motorcycles are also significant barriers for U.S. companies. 
Malaysia is also considering new emissions standards for motorcycles 
that could restrict market opportunities for imports.

 
------------------------------------------------------------------------
                                                                 Tariff
                             Products                            (pct)
------------------------------------------------------------------------
Automobiles (CB).............................................    140-300
Automobiles (CKD)............................................         80
Vans (CBU)...................................................     42-140
Van (CKD)....................................................         40
4WD/ Multipurpose (CBU)......................................     60-200
4WD/ Multipurpose (CKD)......................................         40
Motorcycle (CBU).............................................         60
Motorcycle (CKD).............................................         30
------------------------------------------------------------------------


    Restrictions on Construction Equipment: In October 1997 Malaysia 
imposed a restrictive licensing regime on imports of heavy construction 
equipment and raised import duties for the second year in a row, as 
detailed below. In October 1996 it raised duties on construction 
equipment from 5 to 20 percent. In addition, the initial capital 
allowance for imported heavy equipment will be reduced from 20 to 10 
percent in the first year, and the annual allowance will be reduced 
from between 12 percent and 20 percent to 10 percent. In April 1999, 
another licensing requirement was established for certain iron and 
steel products.

 
------------------------------------------------------------------------
                                                                 Tariff
                             Products                            (pct)
------------------------------------------------------------------------
Heavy Machinery & Equipment..................................          5
Multi-Purpose Vehicles.......................................         50
Special Purpose Vehicles.....................................         50
Construction Materials.......................................      10-30
------------------------------------------------------------------------


    Duties on Selected Goods: Effective October 19, 2001, the 2002 
budget reduced high import duties on selected goods that were imposed 
to protect local producers from competition from imports. The budget 
also harmonized the import duties on selected intermediate and finished 
goods in order to avoid anomalies and to reduce the cost of doing 
business. Import duties on 55 ``long-protected'' items, (including 
suitcases, textiles, and cigarette lighters) have been reduced from 
between 20 and 105 percent to between 10 percent and 50 percent. Import 
duties on 25 intermediate goods, with duties higher than finished goods 
(including cocoa paste, plugs and sockets, and ball point pen parts) 
have been reduced from between 10 and 30 percent to between 5 and 25 
percent. Import duties on 109 goods, where the rates are not consistent 
with rates on goods from the same category (including adhesives, 
lingerie, and linens) have been reduced from between 25 and 30 percent 
to between 0 and 25 percent. Import duties on 27 items, which are 
competitive or not produced locally (including hydraulic fluids, color 
television receivers, and binoculars) have been abolished.
    Duties on High Value Food Products: In the 2002 budget, the 
government reduced tariffs on 64 selected food items to increase 
consumption and to harmonize import duties rates with Common Effective 
Preferential Tariff (CEPT) rates. Import duties for items such as 
anchovies, sweet corn, peaches, and mixtures of dried nuts and fruits 
were reduced from between 5 and 30 percent to between 2 and 15 percent. 
Duties for processed and high value products, such as canned fruit, 
snack foods, and many other processed foods, range between 20 and 30 
percent. The applied tariff on soy protein concentrate is 20 percent.
    Duties on Alcoholic Beverages and Tobacco Products: In 2001, the 
government increased the sales taxes for tobacco from 15 to 25 percent 
and for alcohol from 15 to 20 percent. In the 2002 budget, the 
government increased the import duty on cigarettes and tobacco products 
from $47/kg to $57/kg and increased the excise duty on cigarettes and 
tobacco products from $10.50/kg to $13/kg.
    Tariff Rate Quota for Chicken Parts: Although the government 
applies a zero import duty on chicken parts, imports are regulated 
through licensing and sanitary controls, and import levels remain well 
below the minimum access commitments established during the Uruguay 
Round.
    Plastic Resins: U.S. exports of some plastic resins are hampered by 
20 percent tariffs. Additional measures may be forthcoming. In October 
2000, the Plastic Resins Producers Group of the Malaysian 
Petrochemicals Association requested government help in overcoming the 
combined effect of high feedstock resins and cheaper imported resins.
    Float Glass Tariff Differentials: Malaysia levies high duties (30 
to 60 percent ad valorem equivalent) on rectangular-shaped float glass. 
Nearly all float glass that moves in world trade is rectangular. To 
qualify for the lower ad valorem MFN tariff rate of 30 percent levied 
on non-rectangular float glass, exporters often must resort to time-
consuming, wasteful procedures such as cutting off one or more corners 
or cutting one edge in a slanted fashion. This is an inefficient and 
expensive process that requires distributors to recut each piece of 
glass into a rectangular shape once it has cleared customs.
    Rice Import Policy: The sole authorized importer of rice is a 
government corporation with the responsibility of ensuring purchase of 
the domestic crop and wide power to regulate imports.
    Film and Paper Product Tariffs: Malaysia no longer has import 
duties on instant print film. The 2002 budget eliminates import duties 
on other film for color photography of paper, paperboard, and textiles. 
In August 1994, the government raised tariffs on several categories of 
imported kraft linerboard (used in making corrugated cardboard boxes) 
to between 20 and 30 percent depending on the category. These tariff 
increases are to be phased out after five years and are subject to 
review every two years. Malaysia did not change the tariff levels after 
the 1996 review. Effective in February 2000, Malaysia increased the 
tariff on newsprint (rolls and sheets) to 10 percent.
    Direct Selling Companies: In May 1999 the Malaysian government 
announced new requirements for the licensing and operation of direct 
selling companies. These requirements include the provisions that: a) 
no more than 30 percent of the locally incorporated company can be 
foreign owned, b) local content of products should be no less than 80 
percent, c) no new products would be approved for sale that did not 
meet local content requirements, and d) all price increases would be 
approved by the Ministry of Domestic Trade and Consumer Affairs. These 
guidelines also spell out the conditions under which companies may 
receive one, two and three year operating licenses. The Ministry 
indicated that the local content targets are not mandatory, except for 
adherence to Malaysia's national equity policy. In October 2001, the 
Minister of Domestic Trade and Consumer Affairs announced that the 
government had lifted its freeze on multi-level direct selling 
licenses. Licenses will be issues to companies with paid-up capital of 
RM 2.5 million ($657,000). Companies with foreign shareholders must 
have paid-up capital of RM 5 million ($1.3 million). The paid-up 
capital requirement for single-level and mail order companies is RM 
500,000 ($131,578). Existing licensed companies will be given one year 
to comply with this ruling. Single-level companies will be permitted to 
apply for multi-level licenses in November 2001, provided they have 
been operating for three years and have annual sales of more than RM 1 
million ($263,157).
    Franchising Practices: The Malaysian government designated 2001 as 
``Franchising Year 2001,'' and it boasts the country as the top choice 
among franchisors and investors in the region, soon to rival Japan. 
While the Malaysian government's lofty predictions may be unrealistic, 
there is nevertheless much room for growth. However, the recently 
enacted Malaysian franchise law contains some provisions that are 
troubling to international franchisors including disclosure 
requirements, regulation of the relationship between the franchisor and 
the franchise, the role of the Malaysian government in franchising, and 
some differences in the treatment of domestic and foreign franchisors.
    Government Procurement: Malaysian Government policy calls for 
procurement to be used to support national objectives such as 
encouraging greater participation of ethnic Malays (bumiputera) in the 
economy, transfer of technology to local industries, reducing the 
outflow of foreign exchange, creating opportunities for local companies 
in the services sector, and enhancing Malaysia's export capabilities. 
As a result, foreign companies do not have the same opportunity as some 
local companies to compete for contracts and in most cases foreign 
companies are required to take on a local partner before their bid will 
be considered. Some U.S. companies have voiced concerns about the 
transparency of decisions and decision-making processes. Malaysia is 
not a party to the plurilateral WTO Government Procurement Agreement.
    Investment Barriers: Malaysia encourages direct foreign investment 
particularly in export-oriented manufacturing and high-tech industries, 
but retains considerable discretionary authority over individual 
investments. Especially in the case of investments aimed at the 
domestic market, it has used this authority to restrict foreign equity 
(normally to 30 percent) and to require foreign firms to enter into 
joint ventures with local partners. To alleviate the effects of the 
economic downturn, Malaysia announced relaxation (extended to December 
31, 2003) of foreign-ownership and export requirements in the 
manufacturing sector for companies producing goods that do not compete 
with local producers. Most foreign firms face restrictions in the 
number of expatriate workers they are allowed to employ.
    Trade-Related Investment Measures: Malaysia has notified the WTO of 
certain measures that are inconsistent with its obligations under the 
WTO agreement on Trade-Related Investment Measures (TRIMs). The 
measures deal with local content requirements in the automotive sector. 
New projects or companies granted ``pioneer status'' are eligible to 
receive a 70 percent income tax exemption. Proper notification allows 
developing-country WTO members to maintain such measures for a five-
year transitional period after entry into force of the WTO. Malaysia 
was scheduled to eliminate these measures before January 1, 2000. In 
December 1999, Malaysia requested a two-year extension of the phase-out 
period. Subsequently, Malaysia requested an additional two-year 
extension. The United States is working in the WTO committee on TRIMs 
to ensure that WTO members meet its obligations.
    Services Barriers: Under the WTO basic telecommunications 
agreement, Malaysia made commitments on most basic telecommunications 
services and partially adopted the reference paper on regulatory 
commitments. Malaysia guaranteed market access and national treatment 
for these services only through acquisition of up to 30 percent of the 
shares of existing licensed public telecommunications operators, and 
limits market access commitments to facilities-based providers. At 
least two U.S. firms have investments in basic and enhanced services 
sectors.
    Professional Services: Foreign professional services providers are 
generally not allowed to practice in Malaysia. Foreign law firms may 
not operate in Malaysia except as minority partners with local law 
firms, and their stake in any partnership is limited to 30 percent. 
Foreign lawyers may not practice Malaysian law or operate as foreign 
legal consultants. They cannot affiliate with local firms or use their 
international firm's name.
    Under Malaysia's registration system for architects and engineers, 
foreign architects and engineers may seek only temporary registration. 
Unlike engineers, Malaysian architectural firms may not have foreign 
architectural firms as registered partners. Foreign architecture firms 
may only operate as affiliates of Malaysian companies. Foreign 
engineering companies must establish joint ventures with Malaysian 
firms and receive ``temporary licensing,'' which is granted only on a 
project-by-project basis and is subject to an economic needs test and 
other criteria imposed by the licensing board. Foreign accounting firms 
can provide accounting or taxation services in Malaysia only through a 
locally registered partnership with Malaysian accountants or firms, and 
aggregate foreign interests are not to exceed 30 percent. Auditing and 
taxation services must be authenticated by a licensed auditor in 
Malaysia. Residency is required for registration.
    Banking: In March 2001, the Central Bank unveiled its 10-year 
Financial Sector Master Plan for developing a more competitive and 
resilient financial system. The Plan is focused on building competitive 
domestic banks and defers the introduction of new foreign competition 
until after 2007. No new licenses are being granted to either local or 
foreign banks; foreign banks must operate as locally controlled 
subsidiaries. (In December 2000, the government reissued a banking 
license to the Bank of China. That license had been surrendered in 
1959.) Foreign-controlled companies are required to obtain 50 percent 
of their local credit from Malaysian banks.
    Insurance: The Financial Sector Master Plan also recommends phased 
liberalization of the insurance industry, including lifting 
restrictions on employment by expatriate specialists, increasing caps 
on foreign equity, and opening the reinsurance industry to competition. 
Insurance branches of foreign insurance companies were required to be 
locally incorporated by June 30, 1998; however, the government has 
granted extensions to that requirement. Foreign shareholding exceeding 
49 percent is not permitted unless the Malaysian Government approves 
higher shareholding levels. As part of Malaysia's WTO financial 
services offer, the government committed itself to allow existing 
foreign shareholders of locally incorporated insurance companies to 
increase their shareholding to 51 percent once the WTO Financial 
Services Agreement goes into effect in 1999. New entry by foreign 
insurance companies is limited to equity participation in locally 
incorporated insurance companies and aggregate foreign shareholding in 
such companies shall not exceed 30 percent.
    Securities: Foreigners may hold up to 49 percent of the equity in a 
stockbroking firm. Currently there are nine stockbroking firms that 
have foreign ownership and 20 representative offices of foreign 
brokerage firms. Fund management companies may be 100 percent foreign-
owned if they provide services only to foreign investors, but they are 
limited to 70 percent foreign-ownership if they provide services to 
both foreign and local investors. In February 2001, the Securities 
Commission released its Capital Markets Master Plan, which features 
liberalized foreign participation limits by 2003, at which time 
foreigners would be permitted to purchase a limited number of existing 
stockbroking licenses and take a majority stake in unit trust 
management.
    Advertising: Foreign film footage is restricted to 20 percent per 
commercial, and only Malaysian actors may be used. The government has 
an informal and vague guideline that commercials cannot ``promote a 
foreign lifestyle.'' Advertising of alcohol products is severely 
restricted.
    Television and Radio Broadcasting: The government maintains 
broadcast quotas on both radio and television programming. Eighty 
percent of television programming is required to originate from local 
production companies owned by ethnic Malays. However, in practice, 
local stations have considerable latitude in programming because of a 
lack of suitable local programming. Sixty percent of radio programming 
must be of local origin. The Communications and Multimedia Act 
transferred responsibility for regulating broadcasting from the 
Ministry of Information to the Ministry of Energy, Telecommunications, 
and Multimedia.
    Other Barriers: U.S. companies have indicated that they would 
welcome improvements in the transparency of government decision-making 
and procedures, and limits on anti-competitive practices. A 
considerable proportion of government projects and procurement are 
awarded without transparent competitive bidding. The government has 
declared that it is committed to fighting corruption and maintains an 
Anti-Corruption Agency, a part of the office of the Prime Minister, to 
promote that objective. The agency has the independent power to conduct 
investigations and is able to prosecute cases with the approval of the 
Attorney General.
6. Export Subsidies Policies
    Malaysia offers several export allowances. Under the export credit 
refinancing scheme operated by the central bank, commercial banks and 
other lenders provide financing to exporters at a preferential interest 
rate for both post-shipment and pre-shipment credit. Malaysia also 
provides tax incentives to exporters, including double deduction of 
expenses for overseas advertising and travel, supply of free samples 
abroad, promotion of exports, maintaining sales offices overseas, and 
research on export markets. To spur exports, 70 percent of the 
increased export earnings by international trading companies has been 
exempted from taxes.
7. Protection of U.S. Intellectual Property
    Malaysia is a member of the World Intellectual Property 
Organization (WIPO), the Berne Convention, and the Paris Convention. 
Malaysia provides copyright protection to all works published in Berne 
Convention member countries regardless of when the works were first 
published in Malaysia. Malaysia is also a member of the WTO and was 
scheduled to meet its obligations under Trade Related Intellectual 
Property Agreement (TRIPS) on January 1, 2000. In 2000, the Malaysian 
government passed a number of new laws and amendments to existing 
legislation in order to bring Malaysia into compliance with its TRIPS 
obligations. New legislation on plant varieties is still being drafted.
    As the number of manufacturing licenses for CDs increased, so did 
piracy rates for music and video discs. Malaysia's production capacity 
for CDs far exceeds local demand plus legitimate exports, and pirated 
products believed to have originated in Malaysia have been identified 
throughout the Asia-Pacific region, North America, South America, and 
Europe. The International Intellectual Property Association (IIPA) 
estimates 2000 industry losses in Malaysia due to piracy at $161 
million. IIPA estimates 2000 piracy rates at 66 percent for business 
software, 98 percent for entertainment, and 80 percent for movies. In 
April 2000 the United States Trade Representative (USTR) placed 
Malaysia on the Special 301 Priority Watch List for its failure to 
substantially reduce pirated optical disc production and export. After 
an out-of-cycle review, in October 2001, USTR upgraded Malaysia to the 
Special 301 Watch List, in recognition of the steps Malaysia has taken 
to implement new legislation and enforce protection of intellectual 
property rights.
    The Malaysian government is aware of the problem and has expressed 
its determination to move against illegal operations. The Prime 
Minister and his cabinet have publicly spoken out about the need to 
improve IPR protection. A special task force, chaired by the Minister 
of Domestic Trade and Consumer Affairs, includes representatives from 
all ministries and agencies with responsibility for IPR. Government and 
industry cooperation has expanded. For example, in July 2000, the 
Ministry and the Business Software Alliance (BSA) launched ``Crackdown 
2000'' targeting corporate use of unlicensed software.
    In April 2000, the Malaysian Parliament passed amendments to the 
Copyright Act, the Patents Act, and the Trademarks Act, as well as 
legislation on layout designs of integrated circuits and geographical 
indications. In September 2000, the Ministry of Domestic Trade and 
Industry gazetted the Optical Disc Act 2000 establishing a licensing 
and regulatory framework for manufacturing copyrighted work and to 
control piracy. Manufacturers are required to obtain licenses from both 
the Ministry of International Trade and Industry and the Ministry of 
Domestic Trade and Consumer Affairs. Manufacturers were given six 
months, until September 15, to comply with the new act.
    Suppressing CD-based digital piracy is consistent with the 
government's objective to establish the Multimedia Super Corridor as 
the preeminent locus of high-technology manufacturing and innovation in 
Asia. Police and legal authorities are generally responsive to requests 
from U.S. firms for investigation and prosecution of copyright 
infringement cases. However, despite thousands of raids and inspections 
since April 1999, no one has been criminally prosecuted for piracy. 
Notwithstanding these efforts of the government, illegal production of 
optical disks remains a significant problem in Malaysia, and its 
effects have been observed throughout the region.
    Trademark infringement and patent protection have not been serious 
problem areas in Malaysia for U.S. companies in recent years.
8. Worker Rights
    a. The Right of Association: By law most workers have the right to 
engage in trade union activity, but less than 10 percent of the work 
force is represented by one of Malaysia's 544 trade unions. Exceptions 
include certain categories of workers labeled ``confidential'' and 
``managerial and executives,'' as well as police and defense officials. 
No legal barrier prevents foreign workers from joining a trade union, 
but the Immigration Department places conditions on foreign workers' 
permits that effectively bar the workers from joining a trade union. 
Government policy places a de facto ban on the formation of national 
unions in the electronics sector, but allows enterprise-level unions.
    b. The Right to Organize and Bargain Collectively: Workers have the 
legal right to organize and bargain collectively, and collective 
bargaining is widespread in those sectors where labor is organized. 
However, severe restrictions on the right to strike weaken collective 
bargaining rights. The law requires that the parties to a labor dispute 
submit to a system of compulsory adjudication. Thus, though 
theoretically legal, strikes are extremely rare.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, and the government enforces this 
prohibition. There is no evidence that forced or compulsory labor 
occurs in Malaysia except for rare cases that, when discovered, are 
prosecuted vigorously by the government.
    d. Minimum Age for the Employment of Children: Malaysian law 
prohibits the employment of children younger than the age of 16. The 
law permits some exceptions, such as light work in a family enterprise, 
work in public entertainment, work performed for the government in a 
school or training institutions, or work as an approved apprentice. In 
no case does the law permit children to work more than six hours per 
day, or more than six days per week, or at night. Child labor occurs, 
but there is no reliable recent estimate of the number of child 
workers. Most child laborers work in the plantation sector, assisting 
parents with the physical labor, but not receiving a wage. Child labor 
can also be found in urban areas in family-run food businesses, night 
markets and small-scale manufacturing.
    e. Acceptable Conditions of Work: There is no minimum wage, but 
prevailing wages generally provide an acceptable standard of living. 
Malaysian law stipulates working hours, mandatory rest periods, 
overtime rates, holidays, and other labor standards. The government 
enforces these standards. Working conditions and occupational safety 
concerns are considerably worse in the plantation sector. An 
occupational safety law provides some protections, but there are no 
specific statutory or regulatory provisions that provide a right for 
workers to remove themselves from a dangerous workplace without 
arbitrary dismissal.
    f. Rights in Sectors with U.S. Investment: U.S. companies invest 
widely in many sectors of the Malaysian economy. Worker rights in 
sectors in which there is U.S. investment generally do not differ from 
those in other sectors. U.S. companies invest heavily in the 
electronics sector, in which workers' right to organize is limited to 
enterprise-level unions.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  1,252
Total Manufacturing.........  ...........  3,411
  Food & Kindred Products...  -8           .............................
  Chemicals & Allied          312          .............................
   Products.
  Primary & Fabricated        -4           .............................
   Metals.
  Industrial Machinery and    202          .............................
   Equipment.
  Electric & Electronic       2,718        .............................
   Equipment.
  Transportation Equipment..  0            .............................
  Other Manufacturing.......  192          .............................
Wholesale Trade.............  ...........  271
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  470
 Estate.
Services....................  ...........  150
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  5,995
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                              PHILIPPINES


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................      76.2       74.7       70.7
  Real GDP Growth (pct) \2\............       3.4        4.0        2.8
  Nominal GDP by Sector:
    Agriculture........................      13.1       11.9       10.3
    Manufacturing......................      16.5       16.9       15.9
    Services...........................      39.8       39.6       38.1
    Government \3\.....................       9.5        9.1        8.3
  Per Capita GDP (actual level, US$)...     1,019        977        903
  Labor Force (quarterly ave., 000s)...    30,759     30,911     32,500
  Unemployment Rate (quarterly ave.,          9.8       11.2       11.1
   pct)................................
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \4\.........      19.3        4.8       10.5
  Consumer Price Inflation (pct).......       6.7        4.4        6.3
  Exchange Rate (Peso/US$ annual
   average):...........................
    Interbank Rate.....................     39.09      44.00      51.00
 
Balance of Payments and Trade:
  Total Exports FOB \5\................      34.2       37.3       31.7
    Exports to United States \6\.......      12.4       13.9       12.0
  Total Imports FOB \5\................      29.2       30.4       29.9
    Imports from United States \6\.....       7.2        8.8        8.6
  Trade Balance \5\....................       5.0        6.9        1.8
    Balance with United States \6\.....       5.2        5.1        3.4
  External Public Sector Debt..........      34.8       34.4   \8\ 32.6
  Fiscal Deficit/GDP (pct).............      -3.7       -4.1       -4.0
  Foreign Debt Service Payments/GDP           8.3        8.3    \8\ 9.3
   (pct)...............................
  Current Account Balance/GDP (pct)....      10.0       12.5        5.5
  Gold and Foreign Exchange Reserves...      15.1       15.0       14.0
  Aid from United States (US$ millions)      70.0       59.0   \8\ 24.0
   \7\.................................
  Aid from Other Bilateral Sources (US$     173.0       55.0   \8\ 16.0
   millions) \7\.......................
------------------------------------------------------------------------
\1\ Figures for 2001 are full-year estimates based on data available as
  of October.
\2\ Percentage changes based on local currency.
\3\ Government construction and services gross value added.
\4\ Growth rates of year-end M2 levels.
\5\ Merchandise trade (Philippine government data).
\6\ Source: U.S. Department of Commerce; U.S. exports FAS, U.S. imports
  customs basis.
\7\ Grants under bilateral agreements; amounts are inflows per balance
  of payments.
\8\ Actual January-June 2001 data; actual public sector external debt as
  of June 2001.
 
Sources: National Economic and Development Authority, Bangko Sentral ng
  Pilipinas, Department of Finance.


1. General Policy Framework
    President Macapagal-Arroyo has made poverty elimination the primary 
goal of her administration. Achieving that goal will not be easy. Since 
1997, the Asian financial crisis, extreme weather disturbances, 
political uncertainties, poor public sector governance, and a high 
population growth rate have resulted in a rise in poverty and 
increasingly inequitable income distribution in the Philippines. The 
incidence of poverty increased from 36.8 percent in 1997 to 40 percent 
in 2000, representing a setback from the steady declines recorded since 
1988. In 2000, the richest 30 percent of households received more than 
two-thirds of national income and the poorest 30 percent of households 
barely eight percent. Population growth has been a significant factor 
in rising poverty. After years of steady decline, from 3.08 percent per 
year in the 1960s to 2.32 percent per year for the 1990-1995 period, 
final 2000 census results estimated the Philippines' annual population 
expansion at a faster 2.36 percent clip.
    Agriculture contributes only 20 percent of GDP but generates 40 
percent of Philippine employment. Poverty incidence is much higher in 
rural areas (54 percent) than in urban areas (25 percent). Electronics, 
garments, and auto parts are the leading merchandise exports, but rely 
heavily on imported inputs. Dampened by the global economic crunch, 
January-August 2001 export receipts have declined by 13 percent year-
on-year, led by a 21 percent slump in revenues from electronics 
shipments. Overseas workers remittances, estimated at $5-6 billion 
yearly, are a major source of foreign exchange. The balance of payments 
historically has registered current account surpluses (including those 
since the Asian crisis) during periods of economic weakness and 
lethargic import demand, but typically reverts to deficits as economic 
expansion accelerates. The domestic savings rate is relatively low 
compared to the rest of Asia, estimated at barely 17 percent of GDP in 
2000.
    Weak public sector finance has been a long-standing problem merely 
magnified by the Asian financial crisis. After four consecutive 
surpluses from 1994-1997, the national government has reverted to 
deficit spending since 1998, initially as an economic pump-priming 
measure. The medium-term fiscal program calls for gradually declining 
deficits starting in 2002, toward a balanced national government budget 
by 2006. The government perennially has problems containing its fiscal 
gap because revenues suffer from weak tax administration, while efforts 
to contain expenditures are hampered by the large share, over 70 
percent, of nondiscretionary expenditures such as payroll costs, 
interest payments and mandated transfers to local government units. The 
Philippines' tax-to-GDP ratio, among the poorest in the region, peaked 
at no more than 17.1 percent in 1998 before deteriorating in subsequent 
years to 13.7 percent in 2000. These fiscal difficulties have made it 
extremely difficult for the government to address the country's urgent 
infrastructure, health, and education needs and have complicated 
government efforts to manage domestic interest rates. While the 
Macapagal-Arroyo administration's fiscal team deserves praise for its 
determined efforts thus far to live within tight financial resources, 
revenue mobilization remains crucial to sustaining a deficit-reduction 
plan that supports a higher economic growth path and the socioeconomic 
needs of a growing population.
    Open market operations serve as the main policy tool to control 
money supply. The Bangko Sentral is working to shift from a base money 
to inflation-targeting framework before the end of 2001 to better 
fulfill its price stabilization mandate.
    Although subject to opposition from ultra-nationalist groups and 
vested interests, and their effectiveness tempered by political 
uncertainty and separatist violence, reforms to make the Philippines a 
more attractive destination for foreign investment continue to move 
forward. One important example is the Electric Power Industry Reform 
Act, which President Macapagal-Arroyo signed into law in June 2001 
despite strong opposition from ultra-nationalists, environmental 
groups, and entrenched economic interests. Culminating a month-long 
effort of intense lobbying to get legislators and the private sector 
onboard, President Macapagal-Arroyo signed an anti-money laundering law 
on the eve of the September 30 Financial Action Task Force deadline for 
passage of legislation, holding off likely FATF countermeasures. These 
successes built on legislation passed in 2000 under the Estrada 
administration, including the General Banking Law, Securities 
Regulation Code, and the Electronic Commerce Act.
2. Exchange Rate Policy
    There are generally no restrictions to the full and immediate 
transfer of funds associated with import payments, foreign investments 
(i.e., capital repatriation and profit remittances), foreign debt 
servicing, and the payment of royalties, lease payments, and similar 
fees. To obtain foreign exchange from the banking system for such 
purposes, the Bangko Sentral ng Pilipinas (BSP, the central bank) only 
specifies certain registration and/or documentation requirements.
    The exchange rate is not fixed and varies daily in response to 
market forces, although the BSP imposes limits on banks' foreign 
exchange positions. Recent measures in response to speculative currency 
pressures and excessive foreign exchange volatility included monetary 
tightening (i.e., adjustments in reserve requirements and a generally 
cautious domestic interest-rate stance despite successive U.S. rate 
cuts); a lower over-the-counter ceiling for foreign exchange sales 
without documentation; expanded coverage of the BSP's Currency Risk 
Protection Facility (a nondeliverable forward hedging facility first 
introduced in December 1997 to reduce pressures in the spot market); 
and occasional liquidity infusions in the interbank foreign exchange 
market. The depreciation of the peso since the Asian financial crisis, 
from peso 26/dollar in June 1997 to nearly 51/dollar at present, has 
hurt the competitiveness of some U.S. exports.
3. Structural Policies
    There are few activities closed to private enterprise, generally 
for reasons of security, health, and public morals. Prices are 
generally determined by market forces, although basic public services 
such as transport, water, and electricity are subject to government 
control or oversight. Government regulation of prices of petroleum 
products (for example, liquefied petroleum gas, regular gasoline, and 
kerosene) legally ended in July 1998 with the full deregulation of the 
oil industry, but the issue remains politically and socially sensitive. 
In response to public resistance to oil price increases, the government 
has sometimes stepped in to apply moral suasion on oil companies to 
limit, delay, or stagger fuel price adjustments, resulting in alleged 
cost under-recoveries. The government's National Food Authority remains 
a major factor in the market for rice and other agricultural products.
    While progress in investment liberalization has been substantial in 
the last decade, important barriers to foreign entry remain. There are 
two ``negative lists'' of sectors where investment is restricted. 
Divestment requirements exist for firms seeking certain investment 
incentives. A number of other laws specify, or have the effect of 
imposing, local sourcing requirements.
    Almost all products, including imports, are subject to a 10 percent 
Value-Added Tax. Certain products, whether domestically manufactured or 
imported, are subject to excise tax. Imported manufactured items that 
are not locally produced generally face low tariffs, while imports that 
compete with local products face tariffs of up to 30 percent. The 
Philippines' Tariff Reform Program is gradually lowering applied duty 
rates on nearly all items toward a goal of zero to five percent tariff 
rates by 2004, except for sensitive agricultural products.
4. Debt Management Policies
    While regulations have substantially eased, the Bangko Sentral ng 
Pilipinas continues to monitor and/or regulate foreign borrowings to 
ensure that they can be serviced with due regard for the economy's 
overall debt servicing capacity. Certain loans of the private sector 
must be approved by the Bangko Sentral regardless of maturity, the 
source of foreign exchange for debt service, and/or any other 
consideration. These are private sector debts guaranteed by the public 
sector, or covered by forex guarantees issued by local banks; loans 
granted by foreign currency deposit units funded from or collateralized 
by offshore loans or deposits; and loans with maturities of more than 
one year obtained by private banks and financial institutions for 
relending.
    According to the most recent quarterly estimates, the Philippines' 
recorded external debt, based on foreign credits approved or registered 
with the Bangko Sentral ng Pilipinas, stood at $50.9 billion as of end-
June 2001, lower by 2.2 percent ($1.2 billion) from end-2000 and lower 
by 2.4 percent ($1.3 billion) year-on-year. The decline in the foreign 
debt stock reflected larger net repayments of foreign obligations, 
lower commercial bank liabilities, and currency revaluation 
adjustments. Concessional credits from multilateral and official 
bilateral lenders accounted for 48 percent of the country's external 
obligations. As of August 2001, the Bangko Sentral estimated that its 
gross international reserves equaled 133 percent of outstanding short-
term external liabilities (residual maturity basis). Although the 
foreign debt stock declined, the BSP expects the ratio of debt service 
payments to merchandise and service exports to spike from 12.4 percent 
in 2000 to between 16 to 17 percent in 2001 (the highest since 1995) 
reflecting a combination of higher debt service outlays and slumping 
export receipts. These developments suggest vulnerabilities to 
unexpected reversals in export markets, highlighting the importance of 
addressing the weak state of government finances and attracting more 
sustainable, nondebt sources of foreign exchange.
    The Philippines had hoped to end over three decades of 
International Monetary Fund (IMF) supervision in March 1998, but opted 
for a two-year precautionary arrangement due to the regional currency 
crisis. The Estrada administration converted this program to a regular 
$1.4 billion standby arrangement in August 1998. The standby program 
should have concluded in March 2000 but was extended to December 2000 
to give the government more time to improve its fiscal performance and 
complete promised reforms, including legislation to restructure the 
energy sector. The Philippines nevertheless failed to make a graceful 
exit from the arrangement and to draw the last $300 million tranche 
from that facility, mainly because of worsening fiscal slippages. The 
government and the IMF have since agreed on a post-program monitoring 
framework, which involves a periodic review of economic and policy 
developments but no financial support from the Fund.
5. Significant Barriers to U.S. Exports
    Tariffs: Imported items that are not locally produced generally 
face low tariffs (zero to five percent), while intermediate products 
and raw materials that are produced locally are generally assessed 
duties of three to ten percent. Finished products that compete with 
locally produced goods face higher tariffs of 15 to 30 percent. Under 
the current tariff schedule, issued on January 3, 2001, Executive Order 
334, tariffs will be gradually reduced in 2002 and 2003 to meet a 
uniform five percent tariff rate for all products by January 2004. 
Exceptions to this plan include some raw materials that would face a 
three percent rate for 2004, as well as finished automobiles and some 
agricultural goods. Imports of finished automotive vehicles, completely 
builtup units, will remain subject to a 30 percent tariff until 2004, 
when the tariff will fall to five percent. Agricultural goods such as 
sugar and rice now face in-quota tariff rates of between 20 and 45 
percent and out-of-quota rates of up to 65 percent. In 2004, the 
highest rate on agricultural goods will be reduced to 30 percent, both 
in and out of quota. The unweighted average nominal tariff rate was 
7.72 percent in 2001, down from 9.98 percent in 1999.
    Import Licenses: The National Food Authority (NFA), a government 
entity, is the sole authorized importer of rice and continues to be 
involved in imports of corn. Fisheries Administrative Order (FAO) 195, 
series of 1999, issued by the Department of Agriculture, requires a 
license to import fresh, chilled, and frozen fish when intended for 
sale in local retail markets. Executive Order (E.O.) 209 of February 
2000 requires an eligible commercial fishing vessel operator to obtain 
an Authority to Import from the Maritime Industry Authority prior to 
tax and duty-free importation of fishing vessels or boats. Subject to 
other import regulations are certain other items, including firearms 
and ammunition, used clothing, sodium cyanide, chlorofluorocarbon (CFC) 
and other ozone-depleting substances, penicillin and derivatives, coal 
and derivatives, color reproduction machines, chemicals for the 
manufacture of explosives, pesticides, used motor vehicles, and used 
tires. In addition, certain agricultural commodities are subject to 
minimum access volume tariffrate quotas.
    Excise Taxes: U.S. producers of automobiles and distilled spirits 
have raised concerns about certain discriminatory aspects of the 
Philippines' excise tax system. Excise taxes on distilled spirits 
impose a lower tax on products made from materials that are 
indigenously available (e.g., coconut, palm, sugar cane). The excise 
tax treatment of automotive vehicles is based on engine displacement, 
rather than vehicle value.
    Banking: In the field of banking, May 1994 amendments to the 1948 
General Banking Act (GBA) allowed a maximum of 10 foreign banks to 
establish branches in the country. Those foreign banks are limited to 
opening six branches each. The General Banking Law of 2000 (signed in 
May 2000 to succeed the GBA) opened a seven-year window during which 
foreign banks may own up to 100 percent of one locally incorporated 
commercial bank or thrift institution (up from the previous 60 percent 
foreign equity ceiling, with no obligation to divest). However, for the 
first three years, such foreign investment may be made only in existing 
banks, reflecting the Bangko Sentral's current emphasis on banking 
sector consolidation. Regulations require that majority Filipino-owned 
domestic banks control, at all times, at least 70 percent of total 
banking system assets. Rural banking remains completely closed to 
foreigners.
    Securities: Stock and securities brokerage firms may be up to 100 
percent foreign owned but should incorporate under Philippine laws. 
Foreign ownership in securities underwriting companies is limited to 60 
percent. Securities underwriting companies not established under 
Philippine law are not allowed to underwrite securities for the 
Philippine market, but may underwrite Philippine issues for foreign 
markets.
    Insurance: Minimum capitalization requirements increase with the 
degree of foreign equity. Current regulations specify that only the 
Philippines' Government Service Insurance System can provide coverage 
for governmentfunded and Build-Operate-Transfer (BOT) projects. 
Insurance and professional reinsurance companies operating in the 
country are required by law to cede to the industry-owned National 
Reinsurance Corporation of the Philippines at least 10 percent of 
outward reinsurance placements.
    Standards, Testing, Labeling, and Certification: Imports of 
products covered by mandatory Philippine national standards must be 
cleared by the Bureau of Product Standards (BPS). Labeling requirements 
apply to a variety of products, including pharmaceuticals, food, 
textiles, and certain industrial goods. The Generics Act of 1988 
mandates that the generic name of a particular pharmaceutical product 
appear above its brand name on all packaging.
    Investment Barriers: The Foreign Investment Act of 1991 contains 
two ``negative lists'' that outline areas where foreign investment is 
restricted. List A restricts foreign investment in certain sectors 
because of constitutional or legal constraints. For example, the 
practice of licensed professions such as engineering, medicine, 
accountancy, environmental planning, and law is fully reserved for 
Filipino citizens. Also reserved for Filipino citizens are enterprises 
engaged in retail trade (with paid-up capital of less than $2.5 
million, or less than $250,000 for retailers of luxury goods), mass 
media, small-scale mining, private security, cock fighting, utilization 
of marine resources, and manufacture of firecrackers and pyrotechnic 
devices. Up to 25 percent foreign ownership is allowed for enterprises 
engaged in employee recruitment and for public works construction and 
repair (with the exception of build-operate-transfer and foreign-funded 
or assisted projects, that is, foreign aid, where there is no upper 
limit). Foreign ownership of 30 percent is allowed for advertising 
agencies, while 40 percent foreign participation is allowed in natural 
resource extraction (the president may authorize 100 percent foreign 
ownership), educational institutions, express delivery, public 
utilities (including telecommunications, shipping, and shipyard 
operation, for example), commercial deep sea fishing, government 
procurement contracts, rice and corn processing (after 30 years of 
operation, before which time 100 percent foreign participation is 
allowed), and ownership of private lands. Retail trade enterprises with 
paid-up capital of more than $2.5 million but less than $7.5 million 
are limited to 60 percent foreign ownership until March 2002, after 
which 100 percent foreign ownership will be allowed. Enterprises 
engaged in financing and investment activities, including securities 
underwriting, are also limited to 60 percent foreign ownership.
    List B restricts foreign ownership (generally to 40 percent) for 
reasons of national security, defense, public health, safety, and 
morals. Sectors covered include explosives, firearms, military 
hardware, massage clinics, and gambling. This list also seeks to 
protect local small and medium firms by restricting foreign ownership 
to no more than 40 percent in nonexport firms capitalized at less than 
US$200,000.
    Incentives and Export Performance Requirements: In general, 
foreign-owned firms producing for the domestic market must engage in a 
pioneer activity to qualify for incentives administered by the 
government's Board of Investment (BOI). For exporters, the BOI imposes 
a higher export performance requirement for foreign-owned enterprises, 
70 percent of production should be exported, than for Philippine-
controlled companies, 50 percent. With the exception of foreign-
controlled firms that export 100 percent of production, foreign firms 
that seek incentives from the Board of Investments must commit to 
divest to 40 percent ownership within 30 years or such longer period as 
the BOI may allow. The United States and the Philippines are near 
agreement on a plan that would phase out WTO-inconsistent local content 
and foreign exchange requirements under the Philippine motor vehicle 
development program by June 30, 2003.
    Local Sourcing Requirements: Outside of the investment incentives 
regime, investors in certain industries are subject to specific laws 
which require local sourcing. E.O. 776 requires that pharmaceutical 
firms purchase semi-synthetic antibiotics from a specific local 
company, unless they can demonstrate that the landed cost of imported 
semi-synthetic antibiotics is at least 20 percent less than that 
produced by the local firm. E.O. 259 bans imports of soap and 
detergents containing less than 60 percent coconut-based surface active 
agents of Philippine origin, thereby requiring local sourcing by soap 
and detergent manufacturers. The Philippine Department of Justice, in 
Opinion No. 88 (1999), stated that E.O. 259 conflicts with the 
country's obligations under the WTO Agreement on Trade-Related 
Investment Measures. Since then, the E.O. has not been enforced. Letter 
of Instruction (LOI) 1387, issued in 1984, requires mining firms to 
prioritize the sale of their copper concentrates to Philippine 
Associated Smelting and Refining Corp. (PASAR), a government-controlled 
firm until its privatization in 1998. The Retail Trade Act of 2000 
requires local sourcing for the first ten years after the law's 
effective date. During that period, at least 30 percent of the cost of 
inventory of foreign retail firms not dealing exclusively in luxury 
goods, and 10 percent of the inventory of firms selling luxury 
products, should consist of products assembled in the Philippines.
    Government Procurement Practices: Contracts for government 
procurement are awarded by competitive bidding. Preferential treatment 
of local suppliers is practiced in government purchases of 
pharmaceuticals, rice, corn, and iron/steel materials for use in 
government projects and in locally-funded government consulting 
requirements. As a general rule, Philippine-controlled firms should 
service locally-funded government consulting requirements. The 
Philippines is not a signatory of the WTO Government Procurement 
Agreement.
    Customs Procedures: All importers or their agents must file import 
entries with the Bureau of Customs (BOC), which then processes these 
entries through its Automated Customs Operating System (ACOS). ACOS 
uses a computer system to classify shipments as low-risk (green lane), 
moderate risk (yellow lane) or high risk (red lane). BOC officials say 
that shipments channeled through the yellow lane will require a 
documentary review, while red lane shipments will require physical 
inspection at the port. According to BOC, green lane shipments are not 
subject to any documentary or inspection requirements. BOC has also 
added a ``Super Green Lane'' for the largest importers (see below). BOC 
issued a series of regulations in December 1999 governing the 
implementation on January 1, 2000, of transaction value and outlining 
procedural steps importers will need to follow. Several of these 
regulations were revised on April 3, 2000. In April 2000, a new customs 
valuation law (R.A. 9135) went into effect. The new law clarifies the 
hierarchy of valuation methods to be used by BOC by removing reference 
to a price reference database and also authorizes the BOC to conduct 
post-entry audits. However, the BOC has not yet issued implementing 
rules and regulations for R.A. 9135.
6. Export Subsidies Policies
    Firms engaged in activities under the government's ``Investment 
Priorities Plan'' may register with the Board of Investments (BOI) for 
fiscal incentives, including three to six year income tax holidays and 
a tax deduction equivalent to 50 percent of the wages of direct-hire 
workers for the first five years from registration. BOIregistered firms 
that locate in less developed areas may be eligible to claim a tax 
deduction of up to 100 percent of outlays for infrastructure works and 
100 percent of incremental labor expenses also for the first five years 
from registration. Export-oriented firms located in 
governmentdesignated export zones and industrial estates registered 
with the Philippine Economic Zone Authority enjoy basically the same 
incentives as BOIregistered firms, and a longer income tax holiday 
(ITH) of four years, extendable to a maximum of eight years. After the 
ITH period, a special five percent tax on gross income in lieu of all 
national and local taxes will apply. Firms which earn at least 50 
percent of their revenues from exports may register for certain tax 
credits under the ``Export Development Act'' (EDA), including a tax 
credit based on incremental export revenues.
7. Protection of U.S. Intellectual Property
    In addition to its commitments under the WTO TRIPs Agreement, the 
Philippines is a party to the Paris Convention for the Protection of 
Industrial Property, Berne Convention for the Protection of Literary 
and Artistic Works, Budapest Treaty on the International Recognition of 
the Deposit of Microorganisms, Patent Cooperation Treaty, and Rome 
Convention. Although the Philippines is a member of the World 
Intellectual Property Organization, it has not yet ratified the WIPO 
Performances and Phonograms Treaty or the Copyright Treaty.
    The Intellectual Property Code (R.A. 8293, 1997) provides the legal 
framework for IPR protection in the Philippines. The Electronic 
Commerce Act (R.A. 8792, 2000) extends this framework to the internet. 
Key provisions of the Intellectual Property Code are summarized here:
    Patents: The Philippines uses a first-to-file system, with a patent 
term of 20 years from date of filing, and provides for the 
patentability of micro-organisms and nonbiological and microbiological 
processes. The holder of a patent is guaranteed an additional right of 
exclusive importation of his invention. A compulsory license may be 
granted in some circumstances, including if the patented invention is 
not being worked in the Philippines without satisfactory reason, 
although importation of the patented article constitutes working or 
using the patent.
    Industrial Designs: The registration of a qualifying industrial 
design, including layout-designs of integrated circuits, shall be for a 
period of five years from the filing date of the application. The 
registration of an industrial design may be renewed for not more than 
two consecutive periods of five years each.
    Trademarks, Service Marks, and Trade Names: Prior use of a 
trademark in the Philippines is not a requirement for filing a 
trademark application. Well-known marks need not be in actual use in 
Philippine commerce or registered with the Bureau of Patents, 
Trademarks, and Technology Transfer. A Certificate of Registration 
(COR) shall remain in force for ten years. A COR may be renewed for 
periods of ten years at its expiration upon request and payment of a 
prescribed fee.
    Copyright: Computer software is protected as a literary work; 
exclusive rental rights may be offered in several categories of works 
and sound recordings; and terms of protection for sound recordings, 
audiovisual works, and newspapers and periodicals are compatible with 
the WTO Agreement on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS Agreement).
    Performers Rights: ``The qualifying rights of a performer . . . 
shall be maintained and exercised fifty years after his death.'' 
However, ambiguities exist concerning exclusive rights for copyright 
owners over broadcast and retransmission.
    Trade Secrets: While there are no codified rules on the protection 
of trade secrets, Philippine officials assert that existing civil and 
criminal statutes protect trade secrets and confidential information.
    Policy Framework: Deficiencies in the Intellectual Property Code 
remain a source of concern. Weaknesses include the lack of authority 
for courts hearing civil cases to order the seizure of pirated material 
as a provisional measure without notice to the suspected infringer, 
that is, ex-parte search rights (as required by Article 50 of the WTO 
TRIPS Agreement); ambiguous provisions on the rights of copyright 
owners over broadcast, rebroadcast, cable retransmission, or satellite 
retransmission of their works; and burdensome restrictions affecting 
contracts to license software and other technology.
    Under the Intellectual Property Code of the Philippines, the 
Intellectual Property Office (IPO) has jurisdiction to resolve certain 
disputes concerning alleged infringement and licensing. IPO's 
administrative complaint mechanisms, established in April 2001, has yet 
to be tested. In addition to the IPO, agencies with IPR enforcement 
responsibilities include the Department of Justice; National Bureau of 
Investigation; Videogram Regulatory Board (for piracy involving 
cinematographic works), the Bureau of Customs, and the National 
Telecommunications Commission (for piracy involving satellite signals 
and cable programming). The Presidential Interagency Committee on 
Intellectual Property Rights (PIAC-IPR) is composed of representatives 
from these and other agencies and is tasked with coordinating 
enforcement efforts. The private sector can file requests for IPR 
enforcement actions with the PIAC-IPR.
    Enforcement: Significant problems remain in ensuring the consistent 
and effective protection of intellectual property rights. According to 
aggregated industry statistics, the total annual loss resulting from 
copyright piracy in the Philippines in 2000 was estimated at about 
US$140 million. U.S. distributors report high levels of pirated optical 
discs of cinematographic, musical works, and computer games, and 
widespread unauthorized transmissions of motion pictures and other 
programming on cable television systems.
    Serious problems continue to hamper the effective operation of 
agencies tasked with IPR enforcement. Resource constraints, already a 
problem, have been exacerbated by general government budgetary 
shortfalls. In general, government enforcement agencies are most 
responsive to those copyright owners who actively work with them to 
target infringement. Enforcement agencies generally will not 
proactively target infringement unless the copyright owner brings it to 
their attention and works with them on surveillance and enforcement 
actions. Joint efforts between the private sector and the National 
Bureau of Investigations and Videogram Regulatory Board have resulted 
in some successful enforcement actions. The designation of 48 courts to 
handle IPR violations has done little to streamline judicial 
proceedings, as these courts have not received additional resources and 
continue to handle a heavy non-IPR workload. Delays in the issuance of 
warrants are a problem and arrests are infrequent. In addition, IPR 
cases are not considered major crimes, and take a lower precedence in 
court proceedings. Because of the prospect that court action will be 
lengthy, many cases are settled out of court.
8. Worker Rights
    a. The Right of Association: All workers (including public 
employees) have the right to form and join labor unions. Although this 
right is exercised in practice, aspects of the public sector 
organization law restrict and discourage organizing. Trade unions are 
independent of the government and generally free of political party 
control. Unions have the right to form or join federations or other 
labor groups. Subject to certain procedural restrictions, strikes in 
the private sector are legal. Unions are required to provide strike 
notice, respect mandatory cooling-off periods, and obtain majority 
member approval before calling a strike.
    b. The Right to Organize and Bargain Collectively: The Philippine 
Constitution guarantees the right to organize and bargain collectively. 
The Labor Code protects and promotes this right for employees in the 
private sector and in government-owned or controlled corporations. A 
similar but more limited right is afforded to employees in most areas 
of government service. Dismissal of a union official or worker trying 
to organize a union is considered an unfair labor practice. Labor law 
is uniform throughout the country, including industrial zones. However, 
local political leaders and officials governing some special economic 
zones have tried to frustrate union organizing efforts by maintaining 
``union free/strike free'' policies. In the large informal sector, as 
well as in retail, information technology and garments, the widespread 
use of short-term, contract workers is an obstacle to workers forming 
unions or obtaining medical and retirement benefits.
    c. Prohibition of Forced or Compulsory Labor: The Philippine 
Constitution prohibits forced labor, and the government generally 
enforces this prohibition.
    d. Minimum Age for Employment of Children: Philippine law prohibits 
the employment of children below age 15, with some exceptions involving 
situations under the direct and sole responsibility of parents or 
guardians, or in the cinema, theater, radio and television in cases 
where a child's employment is essential. The Labor Code allows 
employment for those between the ages of 15 and 18 for such hours and 
periods of the day as are determined by the Secretary of Labor, but 
forbids employment of persons under 18 years in hazardous or dangerous 
work. Government and international organizations estimates indicate 
that there are some 3.7 million working children, including 2 million 
in hazardous conditions. A significant number are employed in the 
informal sector of the urban economy or as unpaid family workers in 
rural areas.
    e. Acceptable Conditions of Work: A comprehensive set of 
occupational safety and health standards exists in law. Statistics on 
actual work-related accidents and illnesses are incomplete, as 
incidents (especially in regard to agriculture) are underreported.
    f. Rights in Sectors with U.S. Investment: U.S. investors in the 
Philippines generally apply U.S. standards of worker safety and health, 
in order to meet the requirements of their home-based insurance 
carriers. Some U.S. firms have resisted efforts by their employees to 
form unions, with local government support.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
            Category                                      Amount
------------------------------------------------------------------------
Petroleum.......................  ...............  1
Total Manufacturing.............  ...............  1,207
  Food & Kindred Products.......  349              .....................
  Chemicals & Allied Products...  371              .....................
  Primary & Fabricated Metals...  55               .....................
  Industrial Machinery and        11               .....................
   Equipment.
  Electric & Electronic           283              .....................
   Equipment.
  Transportation Equipment......  0                .....................
  Other Manufacturing...........  140              .....................
Wholesale Trade.................  ...............  232
Banking.........................  ...............  201
Finance/Insurance/Real Estate...  ...............  975
Services........................  ...............  -15
Other Industries................  ...............  308
    Total All Industries........  ...............  2,910
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                               SINGAPORE


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................     84,089      92,466      86,962
  Real GDP Growth (pct) \2\.........        5.9         9.9        -2.0
  GDP by Sector: \2\
    Agriculture \3\.................          0           0           0
    Manufacturing...................     21,079      24,890      23,583
    Services........................     57,205      62,731      45,654
    Government expenditure..........      8,799      10,762      15,892
  Per Capita GDP (US$)..............     21,284      23,000      21,645
  Labor Force (000s)................      1,976       2,192       2,000
  Unemployment Rate (pct)...........        3.5         3.1         4.0
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        8.5        -2.9       -13.0
  Consumer Price Inflation (pct)....        0.0         1.8         1.4
  Exchange Rate (SGD/US$ annual            1.69        1.72        1.76
   average).........................
 
Balance of Payments and Trade:
  Total Exports FOB.................    114,965     138,271     115,292
    Exports to United States CIF \4\     22,021      23,947      19,178
  Total Imports CIF.................    111,326     134,986     112,127
    Imports from United States FAS       18,961      20,185      17,548
     \4\............................
  Trade Balance.....................      3,638       3,285       3,165
    Balance with United States \4\..      3,060       3,762       1,630
  External Public Debt..............          0           0           0
  Fiscal Surplus/GDP (pct)..........        1.9         1.5         2.8
  Current Account Surplus/GDP (pct).       25.0        25.0        24.0
  Debt Service Payments/GDP (pct)...          0           0           0
  Gold and Foreign Exchange Reserves     77,176      80,427      74,353
  Aid from United States............          0           0           0
  Aid from All Other Sources........          0           0           0
------------------------------------------------------------------------
Note: All percentage changes are calculated based on the local currency.
 
\1\ 2001 figures are projections based on most recent data available.
\2\ Singapore introduced a methodology to include offshore stockbroking,
  investment advisory and insurance services in the output of the
  financial services industry, resulting in changes to the GDP and
  growth figures computed in previous years.
\3\ Includes the agriculture, fishing, and quarrying industries.
\4\ Trade data was taken from the U.S. Department of Commerce instead of
  Singaporean government sources.


1. General Policy Framework
    Singapore's open-trade economic policies have enabled it to 
overcome land, labor and resource constraints to become the world's 
second most competitive economy (according to the World Economic 
Forum's 2001 ranking). It has also helped Singapore achieve the world's 
fifth highest per capita income, based on the World Bank's 1999/2000 
ranking of per capita GNP in purchasing power parity terms. 
Manufacturing, dominated by electronics, chemicals (including oil 
refining) and information technology-related products, accounted for 26 
percent of total GDP in 2000. Multinational companies accounted for 79 
percent of new manufacturing investment, which totaled US$5.4 billion 
in 2000. Wholesale and retail trade represented 17 percent of GDP in 
2000, reflecting Singapore's key role as a regional gateway. Financial 
services, which accounted for 11 percent of GDP in 2000, is the third 
largest economic sector.
    Trade was three times GDP in 2000; re-exports (transshipments) 
accounted for 43 percent of total merchandise exports. The United 
States is Singapore's second largest trading partner, after Malaysia, 
accounting for 16 percent of Singapore's total trade in 2000. U.S. 
exports to Singapore amounted to US$17.8 billion in 2000, while 
Singapore's exports to the United States totaled US$23.9 billion. 
Singapore was the tenth largest export market for the United States in 
2000. Over 1,515 U.S. companies have facilities in Singapore, with 
total investments of US$23.2 billion in 2000.
    While Singapore has a largely free-market business environment, 
government-linked companies (GLCs) and the public sector account play 
an important role in the economy, accounting for at least a quarter of 
GDP and over one third of the Singapore Exchange's capitalization. 
However, GLCs generally operate as commercial entities and frequently 
include private local and foreign equity. Many are publicly listed.
    The government pursues conservative fiscal policies designed to 
encourage high levels of savings and investment, but invests heavily in 
the country's social and physical infrastructure, including education 
and transportation. It also provides subsidies for public housing. Over 
a third of the budget is spent on defense. The government generally 
runs a budget surplus, US$3.1 billion in Singapore Fiscal Year (SFY) 
2000. Foreign reserves total over US$80 billion, with a substantial 
share invested overseas. The Central Provident Fund (CPF), a compulsory 
savings program that requires 36 percent of an individual's salary to 
be placed in a tax-exempt account, is the principal reason for the high 
gross national savings rate of about 50 percent of GDP.
    There are virtually no controls on capital movements. The key 
objective of the Monetary Authority of Singapore (MAS), the country's 
central bank, is to maintain price stability. It does so largely 
through exchange rate policy. MAS also engages in limited money-market 
operations to influence interest rates and ensure adequate liquidity in 
the banking system. Inflation has averaged 2.0 percent annually over 
the last 10 years, except for 1998 when there was deflation of 0.3 
percent due to the economic recession. Since the economic recovery, 
price levels have been rising with the CPI expected to increase by 3.5 
percent in 2001. The average prime lending rate among the leading banks 
is currently at 5.8 percent.
2. Exchange Rate Policy
    Singapore has no exchange rate controls and exchange rates are 
determined freely by market forces. The Monetary Authority of Singapore 
(MAS) manages the Singapore dollar against a basket of currencies of 
Singapore's main trading partners and competitors, and the trade-
weighted exchange rate is allowed to fluctuate within an undisclosed 
policy band. The Singapore dollar weakened during 2001. The government 
imposes certain restrictions to limit the internationalization of the 
Singapore dollar, although these have been loosened significantly, most 
recently in December 2000 and March 2001.
3. Structural Policies
    Market forces generally determine product prices. The government 
conducts its bids by open tender and encourages price competition 
throughout the economy.
    Singapore's personal income tax rates range from two percent for 
the lowest income bracket to 28 percent for those earning annual 
incomes exceeding S$ 400,000 (about US$ 240,000), although most low-to-
middle income Singaporeans benefit from tax exemptions and pay no tax. 
In April 2001, the government lowered corporate income tax rate from 
25.5 percent to 24.5 percent, both effective in 2002. Foreign firms are 
taxed at the same rate as local firms. Apart from residential 
properties sold within three years, there is no tax on capital gains. 
All products, including imported goods, are subject to a three percent 
value-added Goods and Services Tax (GST). Faced with a sharp economic 
downturn in 2001, the government announced two extra-budgetary spending 
and tax cut packages designed to support domestic demand, minimize 
unemployment, and reduce business costs.
    Investment policies are generally open and tailored to attract 
foreign investment and ensure an environment conducive to efficient 
business operations. The government vigorously develops and implements 
industrial policies, and in some limited areas links licenses for 
certain activities to performance requirements. It does not, however, 
impose production standards, require purchases from local sources, or 
specify a percentage of output for export. The government seeks to 
upgrade Singapore into what it terms a knowledge-based economy, with a 
particular focus on the logistics, electronics and info-technology, 
chemicals, life sciences, bio-medical, and healthcare sectors. It also 
wants to make Singapore a key Asia-Pacific financial center and an 
info-communication hub. As part of this process, the government has 
moved to open restricted sectors, such as domestic banking, 
telecommunications and power, to foreign investment. It extensively 
uses fiscal policy tools to encourage research and development, as well 
as attract foreign professionals to work in Singapore.
4. Debt Management Policies
    Singapore has no external public debt. The country's total foreign 
reserves amounted to US$80.4 billion as of end-2000, sufficient to 
cover six months of imports. Singapore does not receive financial 
assistance from foreign governments.
5. Significant Barriers to U.S. Exports
    Approximately 96 percent of imports are duty-free. Tariffs are 
primarily levied on cigarettes and alcohol to restrict their 
consumption. Excise taxes are levied on petroleum products and motor 
vehicles to restrict motor vehicle use. Import licenses are not 
required, customs procedures are minimal and designed to facilitate 
trade, and the standards' code is reasonable. All major government 
procurements are by international tender. Singapore is a signatory to 
the WTO Government Procurement Agreement.
    While welcoming foreign investment in most areas, important 
barriers to U.S. service providers remain in some sectors, particularly 
in finance and professional services.The Monetary Authority of 
Singapore (MAS) has liberalized domestic restrictions on foreign 
financial services providers. In 1999, it opened up the local 
securities market to foreign brokers, and issued ``qualifying full 
bank'' (QFB) licenses to four foreign banks. It plans to award two more 
QFB licenses by end-2001. However, QFBs remain limited to 15 locations 
(branches or ATMs) and are unable to access the local ATM network. This 
puts them at a major competitive disadvantage compared to the three 
Singapore-owned local retail banks.
    Foreign law firms can and do set up offices in Singapore, generally 
to advise multinational clients on third-country matters or financial 
transactions in Singapore's offshore market. Since 2000, the government 
has permitted a limited number of foreign law firms to enter into joint 
ventures (including partnerships) or ``formal alliances'' with local 
law firms, which can then market themselves as single service 
providers. Foreign lawyers in joint law ventures may practice Singapore 
law if they are registered to do so by the Attorney General, but may 
not appear before judicial and regulatory bodies or render legal 
opinions relating to Singapore law.
    Singapore opened its telecommunications industry to full 
competition and allowed full foreign ownership in April 2000. However, 
the cable industry remains in the hands of a monopoly provider, 
Singapore CableVision, a government-owned company. The government also 
restricts the importation of satellite receivers. The government is in 
the process of opening the power generation and supply sectors to 
foreign investment and competition. The electricity and gas 
distribution network will become a regulated monopoly operated by a 
corporatized-government entity.
    Direct selling and multi-level marketing companies face 
restrictions. The Multi-level Marketing and Pyramid Selling 
(Prohibition) Act of 2000 strengthened the prohibition on most multi-
level marketing arrangements. While the government allows for 
arrangements that may have some of the features of multi-level 
marketing, the terms and conditions under which such arrangements can 
operate are unclear.
6. Export Subsidies Policies
    Singapore does not directly subsidize exports. The government 
offers significant incentives to attract foreign investment, with most 
incentives directed at export-oriented industries. It also offers tax 
incentives to exporters and reimburses firms for certain costs incurred 
in trade promotion. It does not employ multiple exchange rates, 
preferential financing schemes, import cost-reduction measures or other 
trade-distorting policy tools.
7. Protection of U.S. Intellectual Property
    Singapore has enacted a series of laws and amendments to existing 
provisions with the aim of rendering its IPR regime fully consistent 
with the WTO Agreement on Trade-Related Intellectual Property Rights. 
These measures include numerous amendments to its Copyright Law (1998 
and 1999) and the Medicines Act (1998), as well as a new Trade Marks 
Act (1999), Geographical Indications Act (1999), Layout Designs of 
Integrated Circuits Act (1999), and Registered Designs Act (2000). 
Singapore is a member of the World Intellectual Property Organization 
(WIPO) but has not yet ratified the WIPO Copyright Treaty and the WIPO 
Performances and Phonograms Treaty. Singapore is a signatory to the 
Paris Convention for the Protection of Industrial Property, the Patents 
Cooperation Treaty, and the Budapest Treaty. Singapore also became a 
member of the Berne Convention in December 1998 and acceded to the 
Madrid Protocol in 2000. Singapore was removed from the U.S. Special 
301 Watch List on April 30, 2001.
    Singapore's Patent Law, which came into force on February 23, 1995, 
established a revised patent system in Singapore and provides patent 
protection for a maximum term of 20 years, subject to the annual 
renewal of the patent. Under the revised system, applicants no longer 
need to obtain a UK patent first. There are no significant IPR problems 
in the area of patent protection.
    The new Trademarks Act, which came into force on January 15, 1999, 
includes new border enforcement measures and also extends protection of 
well-known trademarks and collective marks. However, the transshipment 
of counterfeit products through Singapore is a problem. The 
Geographical Indications Act, which came into force January 15, 1999, 
provides additional protection for wines and spirits and seeks to 
prevent the use and registration of misleading geographical indications 
(e.g. ``Virginia'' ham, ``California'' wine), which would constitute an 
act of unfair competition within the meaning of the Paris Convention.
    Amendments to the Copyright Act enhanced performers' rights, 
provided new protection for rental rights, strengthened customs 
controls and procedures, and legalized the seizure of business 
documents in raids on IPR violators. However, neither the exportation 
nor transshipment of infringing works, nor the use of infringing copies 
of software are considered criminal offenses. Most infringing products 
appear to be imported. While the overall software piracy level is among 
the lowest in Asia, it remains double that in the United States. Since 
January 2000, the Intellectual Property Rights Branch (IPRB) of the 
Singapore Police Force's Criminal Investigation Department (CID), has 
made progress in conducting sustained operations against retail vendors 
and distributors of pirated works. But pirated computer software, 
music, and cinemagraphic works remain commonly available, and the use 
of unlicensed software continues to be widespread. The government also 
has not abandoned its ``self help'' policy on enforcement, which places 
an undue and expensive burden on rights holders to initiate raids and 
prosecute pirates. Finally, local universities and other education 
institutions have thus far failed to implement fully their obligations 
under the law to pay royalty fees in exchange for the right to 
duplicate copyrighted printed works for use in course materials.
8. Worker Rights
    a. The Right of Association: The Singapore Constitution gives all 
citizens the right to form associations, including trade unions. 
Parliament may, however, impose restrictions due to security, public 
order, or morality considerations. The right of association is 
delimited by the Societies Act, and labor and education laws and 
regulations.
    Singapore's labor force numbered 2.2 million in 2001, of which 
315,000 or about 15 percent were organized into 72 trade unions. Almost 
all of these unions are affiliated with an umbrella organization, the 
National Trades Union Congress (NTUC), which has a symbiotic 
relationship with the government.
    b. The Right to Organize and Bargain Collectively: Collective 
bargaining is a normal part of labor-management relations in Singapore, 
particularly in the manufacturing sector. Collective bargaining 
agreements are renewed every two to three years, although wage 
increases are negotiated annually.
    c. Prohibition of Forced or Compulsory Labor: Singapore law 
prohibits forced or compulsory labor. Under sections of the Destitute 
Persons Act, however, any indigent person may be required to reside in 
a welfare home and engage in suitable work.
    d. Minimum Age for Employment of Children: The government enforces 
the Employment Act, which prohibits the employment of children under 12 
years of age and restricts children under 17 from certain categories of 
work.
    e. Acceptable Conditions of Work: The Singapore labor market offers 
relatively high wage rates and working conditions consistent with 
international standards. However, Singapore has no minimum wage or 
unemployment benefits. The government's enforcement of comprehensive 
occupational safety and health laws, coupled with the promotion of 
educational and training programs, have reduced the frequency and 
severity of industrial accidents during the last decade.
    f. Rights in Sectors with U.S. Investment: U.S. firms have 
substantial investments in several industries, notably petroleum, 
chemicals and related products, electronic and electronics equipment, 
transportation equipment, and other manufacturing areas. Labor 
conditions in these sectors are the same as in other sectors of the 
economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  1,718
Total Manufacturing.........  ...........  11,834
  Food & Kindred Products...  5            .............................
  Chemicals & Allied          574          .............................
   Products.
  Primary & Fabricated        11           .............................
   Metals.
  Industrial Machinery and    5,411        .............................
   Equipment.
  Electric & Electronic       4,081        .............................
   Equipment.
  Transportation Equipment..  284          .............................
  Other Manufacturing.......  749          .............................
Wholesale Trade.............  ...........  1,590
Banking.....................  ...........  696
Finance/Insurance/Real        ...........  6,217
 Estate.
Services....................  ...........  908
Other Industries............  ...........  282
    Total All Industries....  ...........  23,245
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 TAIWAN


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices)..............     287.8      309.4      287.0
  Real GDP Growth (percent)............       5.4        5.9       -0.4
  GDP by Sector:
    Agriculture........................       7.4        6.5        5.1
    Manufacturing......................      76.5       81.6       70.3
    Services...........................     184.9      202.7      194.0
    Government.........................      29.3       31.5       29.3
  Per Capita GDP (US$).................    13,114     13,985     12,877
  Labor Force (000s)...................     9,668      9,784      9,830
  Unemployment Rate (percent)..........       2.9        3.0        4.6
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2)....................       8.3        6.7        6.3
  Consumer Price Inflation.............       0.2        1.3        0.4
  Exchange Rate (NT$/US$): \2\.........
    Official...........................     32.23      31.34       33.8
 
Balance of Payments and Trade: \3\
  Total Exports FOB \4\................     121.6      148.3      126.2
    Exports to U.S. CV \5\.............      35.2       40.5       33.3
  Total Imports CIF \4\................     110.7      140.0      113.2
    Imports from U.S. FAS \5\..........      19.1       24.4       18.7
  Trade Balance \4\....................      10.9        8.3       13.0
    Trade Balance with U.S. \5\........     -16.1      -16.1      -14.6
  External Debt........................      38.6       34.7       30.0
  Fiscal Deficit/GDP (pct).............       1.1        4.1        4.1
  Current Account Surplus/GDP (pct)....       3.3        2.9        4.2
  Gold and Foreign Exchange Reserves...     111.1      111.3      111.0
  Aid from U.S. \6\....................         0          0          0
  Aid from Other Countries.............         0          0          0
------------------------------------------------------------------------
\1\ 2001 figures are estimated based on data from the Directorate
  General of Budget, Accounting and Statistics (DGBAS), or extrapolated
  from data available as of June 2001.
\2\ An average of month-end exchange rate figures for each year.
\3\ Merchandise trade only. Taiwan service trade statistics are not
  broken out by country.
\4\ Taiwan Ministry of Finance (MOF) figures for merchandise trade.
\5\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 2001 figures are estimates based on data
  available through August. Taiwan MOF figures for merchandise exports
  (FOB) to and imports (CIF) from the United States were(US$ billions):
  (1999) 30.9/19.7, (2000) 34.8/25.1, (2001) 28.6/19.2.
\6\ Aid disbursements stopped in 1965.
\7\ Figures in the table and the following text disagreeing with those
  in the previous reports are mainly due to later revisions by DGBAS.


1. General Policy Framework
    In 2001, Taiwan suffered from economic recession for the first time 
in five decades. Taiwan authorities in August estimated the real GDP 
reversed from six percent growth in 2000 to a decline of 0.37 percent 
in 2001. The September 11 terrorist attacks in New York and Washington, 
DC will likely drive the 2001 economic decline even deeper given that 
exports account for nearly half of the island's GDP. Per capita GDP 
will, therefore, decline from nearly US$14,000 in 2000 to below $13,000 
in 2001. Unemployment rose from below three percent two years ago to 
exceed five percent in August 2001. Taiwan's foreign exchange reserves 
as of August 2001 totaled $113 billion, the fourth largest in the world 
(after Japan, the People's Republic of China, and Hong Kong). Prices 
remained stable, rising 1.3 percent in 2000 and 0.3 percent in the 
first eight months of 2001.
    Industrial growth is now concentrated in semiconductors, electronic 
components, and information technology (IT) industries. Almost all new 
major investments in the past two years went to these industries, which 
accounted for 35-40 percent of Taiwan's total exports. Rising labor and 
land costs have long led many manufacturers in labor intensive 
industries to move offshore, mainly to Southeast Asia and mainland 
China. Services accounted for 65.5 percent of GDP in 2000, up 1.2 
percentage points from 1999. Merchandise exports fell from nearly half 
of GDP in 2000 to 44 percent in 2001 due to weak world demand for 
electronic goods.
    Economic recession has cut into tax revenue and broadened the 
fiscal deficit, driving up domestic public debt. The central fiscal 
deficit, jumping from 1.1 percent of GDP in 1999 to 4.1 percent in 
2000, is expected to reach five percent in 2002. During the period of 
1999-2002, the central government's outstanding debt will double from 
14.3 percent to 28.8 percent of GDP. Taiwan's central authorities now 
rely largely on domestic bonds and bank loans to finance the fiscal 
gap. National defense is no longer the largest expenditure category. 
Social welfare replaced national defense as the largest share of public 
expenditures in 2000 and 2001. Education, science and culture (ESC) is 
expected to replace social welfare as the largest public expenditure in 
2002. The share for ESC expenditure increased from 16 percent in during 
1999-2001 to 17 percent in 2002. On the other hand, the share for 
defense spending dropped from 20 percent in 1999 to 15 percent in 2001 
and 14 percent in 2002. The share for social welfare expenditure, shot 
up from 11 percent in 1999 to 18 percent in 2000-2001, but is expected 
to fall to 16.7 percent in 2002. The greatest pressure on the budget 
now comes from growing demands for improved infrastructure and social 
welfare spending, including reform of a deficit-plagued national health 
insurance program initiated in early 1995.
    The Working Party for Taiwan's accession to the World Trade 
Organization (WTO) completed work on all of Taiwan's WTO working party 
documents in September 2001, and WTO Ministers approved Taiwan's 
accession agreement in November 2001. As part of the accession process, 
Taiwan and the United States signed a landmark bilateral WTO agreement 
in February 1998. The agreement includes both immediate market access 
and phased-in commitments, and will provide substantially increased 
access for U.S. goods, services, and agricultural exports to Taiwan. 
Taiwan is also an active member of the Asia Pacific Economic 
Cooperation (APEC) forum.
2. Exchange Rate Policies
    Taiwan has a floating exchange rate system in which banks set rates 
independently. The Taiwan authorities, however, control the largest 
banks authorized to deal in foreign exchange. The Central Bank of China 
(CBC) intervenes in the foreign exchange market when it feels that 
speculation or ``drastic fluctuations'' in the exchange rate may impair 
normal market adjustments. The CBC uses direct foreign exchange trading 
by its surrogate banks and public policy statements as its main tools 
to influence exchange rates. The CBC still limits the use of derivative 
products denominated in New Taiwan Dollars (NTD).
    Trade-related funds flow freely into and out of Taiwan. Most 
restrictions on capital account flows have been removed since late 
1995. Laws restricting repatriation of principal and earnings from 
direct investment have been lifted. Despite significant easing of 
previous restrictions on foreign portfolio investment, some limits 
remain in place.
3. Structural Policies
    Twenty-nine state-owned enterprises have been either totally or 
partially privatized in the past seven years, including nine in 1998, 
six in 1999, two in 2000, and three in 2001. During the seven-year 
period, 14 other state-owned companies have been closed. Liberalization 
efforts have resulted in the break up of state-owned enterprises' 
monopolies in wireless and fixed line telecommunications, power 
generation, and gasoline supply. Taiwan will phase out the monopoly in 
wine and beer production after it accedes to the WTO. State-owned 
enterprises accounted for 9.3 percent of GDP in mid-2001, down from 9.5 
percent a year earlier. Taiwan's Fair Trade Commission (FTC) acts to 
thwart noncompetitive pricing by state-run monopolies. FTC exemptions 
granted in 1992 to several state-run monopolies were not renewed in 
1997, making such firms subject to anti-monopoly laws.
    Taiwan has been lowering tariffs significantly in recent years, 
both as part of its effort to accede to the WTO as well as to fulfill 
other policy objectives. Tariff reductions in July 1997 were designed 
to fulfill commitments made in the Information Technology Agreement and 
the WTO Agreement on Trade in Civil Aircraft. Taiwan will reduce 
tariffs on 5,200 import categories when it accedes to the WTO. The 
average tariff cut will be 32.4 percent. The nominal tariff rate will 
be lowered from 8.2 percent to 7.08 percent in the first year after its 
accession to WTO and to 4.15 percent by 2007. Many of the tariff cuts 
are of specific interest to U.S. industry.
    High tariffs and pricing structures on some goods, in particular on 
some agricultural products, hamper U.S. exports. However, under the 
bilateral WTO agreement reached in February 1998, Taiwan began to 
provide quotas for the import of previously banned pork, poultry, and 
variety meat products, and agreed to phase in tariff cuts on numerous 
food products upon accession. The Taiwan Tobacco and Wine Monopoly 
Bureau (TTWMB) has a monopoly on domestic production of cigarettes and 
alcoholic beverages. As part of its bilateral WTO commitments to the 
United States, however, Taiwan has pledged to convert an existing 
monopoly tax on these products into excise taxes and import tariffs, 
and also to gradually open the markets after Taiwan accedes to the WTO.
4. Debt Management Policies
    Taiwan's outstanding long and short-term external debt as of March 
2001 totaled $32.3 billion, equivalent to 11 percent of GDP. Taiwan's 
outstanding external public debt was $28 million, compared to gold and 
foreign exchange reserves of $113 billion. Taiwan publishes the debt 
service ratio for the public sector only, with the ratio nearly zero. 
Debt service payment figures for the private sector are not available.
    Cross-border claims by Taiwan's banks as of March 2001 totaled 
$49.3 billion. Of the total claims, 36 percent went to nations in Latin 
America and the Caribbean Area, which maintain diplomatic relations 
with Taiwan. The credit is mainly used to build industrial zones and 
foster development of small and medium enterprises. 1.3 percent went to 
international institutions, including the Asian Development Bank (ADB), 
one of the two multilateral development banks in which Taiwan has 
membership. Taiwan is also a member of the Central American Bank for 
Economic Integration (CABEI). The ADB, CABEI, the European Bank for 
Reconstruction and Development (EBRD), and a number of other 
international organizations have all floated bonds in Taiwan.
5. Significant Barriers to U.S. Exports
    Accession to the WTO by Taiwan will open markets for many U.S. 
goods and services. Currently, of some 10,344 official import product 
categories, 1,006 are ``regulated'' and require approval from relevant 
authorities based on the qualifications of the importer, the origin of 
the good, or other factors. Another 130 categories require import 
permits from the Board of Foreign Trade. Imports of 252 categories are 
``restricted,'' including ammunitions and some agricultural products. 
These items can only be imported under special circumstances, and are 
thus effectively banned. Eighty-six percent of the import categories 
are completely exempt from any controls.
    Financial: Taiwan continues to steadily liberalize its financial 
sector. Taiwan enacted a Futures Exchange Law in March 1997; a futures 
market was established in July 1998. The Securities and Exchange Law 
was amended in May 1997 to remove restrictions on the employment of 
foreigners by securities firms, effective upon Taiwan's accession to 
the WTO. Taiwan removed the foreign ownership limit on companies listed 
on the Taiwan Stock Exchange and OTC Market in late 2000, with a few 
exceptions for designated industries. For qualified foreign 
institutional investors, restrictions on capital flows have been 
removed, although they are still subject to limits on portfolio 
investment. Foreign individual investors are subject to some limits on 
their portfolio investment and restrictions on their capital flows.
    Banking: In June 1997 the annual limit on a company's nontrade 
outward (or inward) remittances was raised from $20 million to $50 
million. Inward/outward remittances unrelated to trade by individuals 
are subject to an annual limit of $5 million. There are no limits on 
trade-related remittances. NTD-related derivative contracts may not 
exceed one-third of a bank's foreign exchange position. To stabilize 
the foreign exchange market in the wake of regional financial turmoil, 
the CBC closed the non-deliverable forward (NDF) market to domestic 
corporations in May 1998; the NDF market remains open to foreign 
companies.
    Legal: Foreign lawyers may not operate legal practices in Taiwan 
but may set up consulting firms or work with local law firms. Qualified 
foreign attorneys may, as consultants to Taiwan law firms, provide 
legal advice to their employers only. Legislation was passed in May 
1998 to permit the eventual establishment of foreign legal partnerships 
either upon accession to the WTO, or upon implementation of the new 
lawyer's law, whichever comes first.
    Insurance: In May 1997, the financial authorities announced that 
principle insurance companies would be allowed to set some premium 
rates and policy clauses without prior approval from regulators. 
Insurance companies are still required to report such rates and 
clauses. In July 1995, Taiwan removed a prohibition against mutual 
insurance companies; as of late 1999, however, authorities had not 
issued implementing regulations on supervision of such companies.
    Transportation: The United States and Taiwan have had an Open Skies 
Agreement in effect since February of 1997. An amendment to the Highway 
Law allowing branches of U.S. ocean and air-freight carriers to truck 
containers and cargo in Taiwan went into effect on November 1, 1997. 
Taiwan also permitted foreign firms to operate car leasing in November 
1997.
    Telecommunications: Taiwan's authorities issued three new fixed 
line licenses to private consortia in March 2000. Taiwan's private 
fixed-line telecommunication companies commenced services in August 
2001. Taiwan liberalized the submarine cable lease market in August 
2000. A U.S.-based submarine cable firm, Asia Global Crossing Taiwan 
Inc., started cable lease services in August 2001. Two other submarine 
cable firms are also expected to receive their operation licenses in 
the first quarter of 2002 and another one is in the application 
process. The international simple resale (ISR) market was opened in 
July 2001; seven out of 15 firms that applied for permits were awarded 
them. Qualified firms are expected to commence services by late 2001. 
Taiwan is scheduled to open the third generation (3 G) cellular phone 
market in late 2001. Under the bilateral WTO agreement signed in 
February 1998, the state-owned Chunghwa Telecom began to lower its 
excessively high interconnection fees previously imposed on private 
mobile service providers. This phased process is ongoing, but Chunghwa 
continues to engage in pricing practices which appear designed to 
unfairly subsidize its mobile operations with its fixed line services. 
Taiwan regulators have begun to address such unfair trading practices. 
In October 1998 Taiwan's legislature passed a revised Telecom Law. It 
raised the 20 percent limit on foreign ownership of a telecom firm to 
60 percent by allowing a combination of direct and indirect ownership. 
And, further amendment on the Telecom Law to be considered by the 
legislature in late 2001 will permit direct foreign ownership to 49 
percent. The aggregate of foreign ownership, including direct and 
indirect, will remain at 60 percent.
    Pharmaceuticals and Medical Devices: Taiwan's single payer 
socialized health care system discriminates against imported drugs by 
setting prices for leading brand-name products at artificially low 
levels, while providing artificially high reimbursement prices for 
locally-made generics. The process by which Taiwan registers and prices 
new drugs is time-consuming, cumbersome and non-transparent. Global 
budgeting, planned to begin in mid-2002, is expected to put further 
stress on U.S. and other research-based pharmaceutical companies. The 
requirement on foreign pharmaceutical factories to submit 
pharmaceutical plant validation files has been criticized by industry 
as onerous. The government agency responsible is seen as unable to 
process the information adequately. The reimbursement system also fails 
to account for significant quality differences between different brands 
of medical devices. In June 2000, Taiwan adopted a new medical device 
classification analogous to USFDA regulations (21 C.F.R.) to simplify 
registration procedures. However, Taiwan still subjects certain U.S. 
medical devices to clinical trials above and beyond those required for 
approval in the U.S. or EU markets. This testing requirement, combined 
with annual quotas on the introduction of new products, effectively 
constrains access of U.S. products to Taiwan's market.
    Movies and Cable TV: Taiwan eased import restrictions on foreign 
film prints, increasing the number of prints permitted from 38 to 58 
per title in late 1997. The number of theaters in any municipality 
allowed to show the same foreign film simultaneously also increased 
from 11 to 18. Effective August 1997, multi-screen theaters are allowed 
to show a film on up to three screens simultaneously, up from the 
previous limit of one. Taiwan has pledged to abolish these restrictions 
upon accession to the WTO. In the cable TV market, concerns remain that 
the island's two dominant Multi-System Operators (MSOs) collude to 
inhibit fair competition. Control by the two MSOs of upstream program 
distribution, for example, has made it difficult for U.S. providers of 
popular programming to negotiate reasonable fees for their programs. 
Content providers have also experienced persistent problems with 
advertising masking by cable broadcasters in violation of their 
contracts.
    Standards, Testing, Labeling, and Certification: Taiwan has agreed 
to bring its laws and practices into conformity with the WTO Agreement 
on Technical Barriers to Trade as part of its WTO accession. However, 
Taiwan is not yet in conformity with WTO norms. U.S. agricultural 
exports are often negatively affected because prior notification of 
changes to standards, labeling requirements, etc. are not provided with 
adequate lead-time; changes to standards and other import requirements 
are not provided in a WTO language. In addition, concerns exist that 
U.S. fresh produce and meat imports do not, in all cases, receive 
national treatment. Industrial products such as air conditioning and 
refrigeration equipment, electric hand tools, and synthetic rubber 
gloves must undergo redundant and unnecessary testing requirements, 
which include destructive testing of samples. For some of these 
products, Taiwan has adopted and expanded an inspection and 
certification registration system to eliminate duplicate inspection 
efforts. Imported autos face stringent noise, emission and fuel 
efficiency testing requirements. In March 1999, the United States and 
Taiwan signed a mutual recognition agreement (MRA) designed to 
eliminate duplicate testing of information technology equipment. 
Certain Taiwan exports to the United States previously tested for 
electromagnetic conformity in labs recognized by Taiwan authorities 
will no longer require duplicate inspections in a U.S. lab. Reciprocal 
treatment will likewise be accorded similar U.S. products imported into 
Taiwan. Relevant U.S. agencies and their Taiwan counterparts are 
jointly implementing operating procedures according to the principles 
of the MRA, including nominating certified labs for mutual 
accreditation.
    Investment Barriers: Taiwan continues to relax investment 
restrictions in a host of areas, but foreign investment remains 
prohibited in some industries such as agriculture, broadcasting, and 
liquor and cigarette production. Fixed line telecommunications were 
liberalized by March 2001 under Taiwan's WTO commitments. Liquor and 
cigarette production will be fully liberalized by 2004.
    Limits on foreign equity participation in a number of industries 
have been progressively relaxed in recent years. For example, 
permissible participation in shipping companies was raised from 50 to 
100 percent. A 33 percent limit on holdings in air cargo forwarders and 
air cargo ground handling was raised to 50 percent in 1998, but remains 
unchanged for airlines. An amendment to the Civil Aviation Law that 
would raise the holding limit to 100 percent on air cargo forwarders is 
now pending legislative approval. In August 1997, Taiwan raised the cap 
on foreign investment in independent power projects from 30 percent to 
49 percent. In early 1999, Taiwan opened cable and satellite television 
broadcasting services to foreign investors, subject to a 50 percent 
ownership limit. In August 2001, Taiwan's authorities proposed an 
amendment to the Telecom Law raising the foreign ownership limit on 
wireless and wire-line telecommunications firms from 20 to 60 percent. 
The government expects legislative passage of the amendment in 2002. In 
October 1999, Taiwan permitted foreign investment in liquefied natural 
gas and petroleum gas supply, subject to a 50 percent foreign ownership 
limit. A 50 percent foreign ownership limit also remains for power 
generation plants, power transmission or distribution firms, shipping 
agents, marine cargo forwarders, air-cargo terminals, and air-catering 
companies. Local content requirements in the automobile and motorcycle 
industries will be lifted as part of Taiwan's WTO accession. 
Restrictions on employment of foreign administrative personnel in 
foreign-invested firms remain in place.
    Procurement Practices: Taiwan has committed to adhere to the WTO 
Agreement on Government Procurement as part of its WTO accession. To 
prepare for this commitment, a new Government Procurement Law (GPL) 
became effective in mid-1999. This law marks an important first step 
towards open, fair competition in Taiwan's multi-billion dollar market 
for public procurement projects. However, given discriminatory 
practices that continue to exist, in August 2001, a Memorandum of 
Understanding on Government Procurement between Taiwan and the United 
States was signed. Measures referred to in the Understanding, such as a 
broader definition of suppliers' qualification and establishment of 
post-award mediation of contract disputes, should improve market 
mechanisms as well as encourage foreign bidders' participation.
    Customs Procedures: Taiwan has amended its laws and regulations to 
implement the customs-procedure-related WTO agreements, including the 
Agreement on Customs Valuation, Agreement on Rules of Origin, Agreement 
on Anti-dumping, Agreement on Subsidies and Countervailing Measures, 
and Agreement on TRIPS. The customs procedures have, therefore, been 
streamlined. At times, however, the customs service still uses 
reference prices that are higher than the import costs reported by 
importers. This practice will need to be eliminated upon Taiwan's 
accession to the WTO.
6. Export Subsidies Policies
    Taiwan provides an array of direct and indirect subsidy programs to 
farmers, ranging from financial assistance to guaranteed purchase 
prices higher than world prices. It also provides incentives to 
industrial firms in export processing zones and to firms in designated 
``emerging industries.'' Some of these programs may have the effect of 
subsidizing exports. Taiwan will reduce or eventually eliminate such 
subsidies as part of its commitments to WTO accession.
7. Protection of U.S. Intellectual Property
    Intellectual property rights (IPR) protection continues to be a 
problem between the United States and Taiwan due to weaknesses in 
Taiwan's legal framework and law enforcement. In preparing for WTO 
accession, Taiwan has taken steps to amend its IPR laws in compliance 
with the WTO TRIPS requirements. Taiwan is not a party to any major 
multilateral IPR convention but is expected to soon become a WTO 
member. WTO ministers approved Taiwan's terms of accession in November 
2001, and Taiwan's membership will become effective 30 days after it 
files the necessary ratification instrument with the WTO's Director-
General.
    In face of the U.S. concerns on IPR protection, Taiwan's 
Intellectual Property Office (IPO) has cooperated with police 
authorities since 2000 to implement an island-wide ``K-plan'' to crack 
down on counterfeit goods. In addition to the ``K-plan,'' the 
authorities also requested that optical media products (CD, CD-ROM, 
VCD, and DVD) bear source identification (SID) codes and MASK-ROMs bear 
special markings for tracking production. To protect optical media 
products, the U.S. requested Taiwan enact an optical disk law to 
control and curtail illegal manufacturers of optical media goods. In 
April 2001, the United States put Taiwan on the Special 301 Priority 
Watch List up from its placement on the Watch List in 2000. This action 
resulted from increased concern over Taiwan's inadequate progress in 
enacting optical media legislation, and Taiwan's failure to shut down 
known copyright pirates and to curtail increasing on-line piracy. An 
optical disk law was passed by the legislature in October 2001.
    Patents: An amendment to the Patent Law was passed by the 
legislature in October 2001. The bill extends the terms of patent 
protection to comply with TRIPS. The amendment also de-criminalizes the 
infringement of invention patents.
    Copyright: In compliance with TRIPS' requirements, a Copyright Law 
amendment was recently approved by the Legislative Yuan. The new law 
will treat ``computer programs'' as literary works conferring economic 
rights for a term consisting of the life of the author and fifty years 
after the author's death. Based on the new WIPO Copyright Treaty, the 
Intellectual Property Office (IPO) has submitted for Executive Yuan 
approval new draft amendments of the ``copyright law.'' The amendments, 
subject to legislative approval, will add the definition of public 
transmission and add provisions such as technological protection 
measures and electronic copyright for the management of information to 
protect copyright in digital web-site world.
    Optical Disc Law: To protect copyrights of works stored on optical 
discs, Taiwan's legislature passed an optical disc law to control 
equipment and production management on October 30, 2001. Manufacturers 
must apply for production licenses and SID codes used in the 
manufacture of optical discs. Violations will face a maximum three-year 
jail sentence and a fine of NT$6.0 million.
    Other areas of concern are poor protection for trade dress, such as 
packaging, configuration, and outward appearance of products, judicial 
difficulties in handling technical cases, and other judicial delays. 
The U.S. International Intellectual Property Alliance (IIPA) estimates 
Taiwan's weak IPR protection caused the U.S. copyright industry to lose 
US$557 million in 2000.
8. Workers Rights
    a. The Right of Association: In 1995, the Judicial Yuan ruled that 
the right to organize trade unions was protected by the Constitution. 
Teachers formed the first association in February of 1999. The 
Examination Yuan also recognized that civil servants have a right of 
association in its proposed ``civil servant basic law,'' submitted to 
the Legislative Yuan in April 2000. Since taking power in May 2000, 
President Chen Shui-bian's administration has significantly eased 
restrictions on the right of association by recognizing six new island-
wide labor federations, includingthe Taiwan Confederation of Trade 
Unions, the Chinese Labor Unions Federation, and the National Trade 
Union Confederation, etc. The progress of Taiwan democracy over the 
past decade has largely eased restrictions on association. However, the 
2000 Labor Rights Report, produced by the Labor Institute of the 
National Chengchi University, pointed out that labor not only needs 
eased restrictions on association, but also increased protection under 
the law. As of March 2001, some 2.9 million workers, or approximately 
30 percent of the 9.8 million-person labor force, belonged to 3,854 
registered labor unions.
    b. The Right to Organize and Bargain Collectively: The Labor Union 
Law (LUL) still forbids persons employed in administrative or 
educational agencies of governments at various levels and persons 
employed in munitions industries to organize labor unions. The 
settlement of labor disputes law also imposes restrictions making legal 
strikes difficult, thereby weakening unions' ability to collectively 
bargain. At present, Taiwan's unions have only 301 collective 
agreements with large-scale state-run and leading private enterprises.
    c. Prohibition of Forced or Compulsory Labor: The Labor Standards 
Law (LSL) prohibits forced or compulsory labor. Apart from forced 
prostitution and outside-contract jobs done by foreign workers, there 
were no reports of these practices.
    d. Minimum Age of Employment of Children: The Labor Standards Law 
prohibits forced and bonded child labor and stipulates age 15, after 
compulsory education required by the law ends, as the minimum age for 
employment. County and city labor bureaus enforce the minimum age law. 
Child labor is rare in Taiwan.
    e. Acceptable Conditions of Work: The Labor Standards Law is rigid 
and not well enforced in areas such as overtime work and pay and 
retirement payments. At the end of 2000, the LSL covered 5.7 million of 
Taiwan's 6.8 million salaried workers. Since 1997, minimum wage has 
remained at NT$15,840/per month (or US$460 at the exchange rate of 
NT$34.5 per US dollar); however, actual wage payments in the 
manufacturing sector have reached NT$38,792/per month in 2000, more 
than double the legal minimum wage. However, new contracts for guest 
workers, which include provision for deductions for formerly free room 
and board, have effectively lowered pay rates. Under an amendment to 
the LSL passed in June 2000, and taking effect in January of 2001, 
maximum working hours are limited to 84 hours every two-weeks, down 
from 48 hours/per week. Some employers assert that the amendment has 
increased production costs and forced them to move business offshore. 
In view of the recent economic slump, the authorities, following the 
recommendation of the Economic Development Advisory Committee (EDAC), 
plan to revise the LSL and allow employers more flexibility. The 
changes could negatively impact working conditions.
    f. Rights in Sectors with U.S. Investment: U.S. firms and joint 
ventures generally abide by Taiwan's labor law regulations. In terms of 
wage and other benefits, worker rights do not vary significantly by 
industrial sector.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  60
Total Manufacturing.........  ...........  3,692
  Food & Kindred Products...  59           .............................
  Chemicals & Allied          1,483        .............................
   Products.
  Primary & Fabricated        60           .............................
   Metals.
  Industrial Machinery and    188          .............................
   Equipment.
  Electric & Electronic       1,454        .............................
   Equipment.
  Transportation Equipment..  65           .............................
  Other Manufacturing.......  381          .............................
Wholesale Trade.............  ...........  871
Banking.....................  ...........  703
Finance/Insurance/Real        ...........  1,972
 Estate.
Services....................  ...........  154
Other Industries............  ...........  285
    Total All Industries....  ...........  7,737
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                THAILAND


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................    121,972     122,020     113,445
  Real GDP Growth (pct).............        4.2         4.4   \2\ 1.5-2.
                                                                      0
  GDP by Sector:
    Agriculture.....................     11,815      11,127       9,899
    Manufacturing...................     39,780      40,778      37,815
    Services........................     15,818      15,888      14,647
    Government \4\..................      8,802       8,885       8,801
  Per Capita GDP (US$)..............      1,947       1,955       1,804
  Labor Force (000s)................     32,719      33,260   \3\ 33,490
  Unemployment Rate (pct)...........        4.2         3.7     \3\ 3.6
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2).................        2.1         3.7     \5\ 5.4
  Consumer Price Inflation..........        0.3         1.6     \3\ 2.0
  Exchange Rate (BHT/US$--annual
   average):........................
    Official........................      37.84       40.16   \6\ 44.51
 
Balance of Payments and Trade:
  Total Exports FOB \7\.............     56,800      67,940   \3\ 63,595
    Exports to United States \7\....     12,654      14,874      12,804
  Total Imports CIF \7\.............     47,529      62,420   \3\ 62,485
    Imports from United States \7\..      6,385       7,317       7,227
  Trade Balance \7\.................      9,271       5,520   \3\ 1,110
    Balance with United States \7\..      6,270       7,557       5,577
  External Public Debt..............     36,024      33,817   \5\ 30,939
  Fiscal Balance/GDP (pct)..........       -5.8       -4.05    \3\ -4.2
  Current Account Balance/GDP (pct).       10.2         7.5     \3\ 4.1
  Debt Service Payments/GDP (pct)...       11.6        10.4         N/A
  Gold and Foreign Exchange Reserves     34,781      32,661   \5\ 32,600
  Aid from United States \8\........       20.8         N/A         N/A
  Aid from All Other Sources........      110.7         N/A         N/A
------------------------------------------------------------------------
All figures based on Royal Thai Government data.
\1\ 2001 figures are all estimates based on six-month data unless
  otherwise indicated.
\2\ Percentage changes calculated in local currency.
\3\ Royal Thai Government projections.
\4\ Government expenditure on GDP for illustrative purposes.
\5\ Data as of August 2001.
\6\ Based on nine-month data average.
\7\ Merchandise trade under balance of payments concept.
\8\ Based on fiscal year (October-September).


1. General Policy Framework
    Since taking office in January 2001, the government of Prime 
Minister Thaksin Shinawatra has worked to accelerate Thailand's 
recovery from the 1997-98 East Asian financial crisis. The crisis began 
in Thailand, when a failed effort to defend the baht (the Thai 
currency) against exchange-rate speculation led the Bank of Thailand 
(BOT) to float the baht in July 1997. The baht lost half of its value 
against the U.S. dollar over the next six months, spreading the crisis 
to the real sector.
    In the decade through 1995, Thailand enjoyed one of the world's 
highest growth rates. With the onset of the crisis, however, real GDP 
dropped by 1.5 percent in 1997 and 10.8 percent in 1998. Strong 
external demand paced an export-led recovery in 1999 and 2000, with GDP 
rising over four percent in both years. The global growth slowdown, 
compounded by uncertainties in the wake of the terrorist attacks in the 
United States, will ease GDP growth to a projected 1.5-2.0 percent in 
2001. Over the long term, the Thai government must accelerate the slow 
pace of economic reform in order to raise the economy's growth 
potential.
    Economic contraction associated with the financial crisis slashed 
Thai imports, which dropped from $72 billion in 1996 to just over $40 
billion in 1998 before rebounding to $62.4 billion in 2000 and a 
projected $62.5 billion in 2001. Imports from the United States fell 
correspondingly, dropping from $8.7 billion in 1997 to $6.4 billion in 
1999 before recovering to $6.7 billion in 2000 and a projected $7.3 
billion in 2001. (Note: Different trade calculation methodologies 
result in discrepancies between U.S. and Thai figures; this report uses 
Bank of Thailand data).
    In August 1997, a $17.2 billion IMF program helped Thailand begin 
restructuring its economy and financial sector. The government closed 
or took over insolvent financial institutions, tightened provisioning 
requirements for banks, and began implementation of legal reforms to 
create a more modern, transparent financial sector. While the financial 
crisis stabilized by late 1998, production and demand did not respond, 
and the government shifted its focus to stimulating domestic demand. 
With the support of the IMF, the government ended years of balanced or 
surplus budgets by running fiscal deficits of over 3 percent of GDP in 
1998, close to 6 percent in 1999, about 4 percent in 2000, and a 
projected 4.2 percent in 2001.
    The Thaksin administration has made stimulating domestic demand a 
priority, and is in the initial stages of implementing a $1.3 billion 
fiscal stimulus program aimed at job creation. The stimulus program is 
part of the budget for fiscal year 2002, which began on October 1, 
2001. The government is also setting up a $1.8 billion Village Fund 
scheme, which will allow nearly 80,000 villages and urban communities 
to set up one million baht (around $23,000) revolving credit programs. 
Another key government program, the Thailand Asset Management 
Corporation (TAMC), will collect approximately $29 billion in bad 
loans, primarily from state-owned banks and private asset management 
companies. A legacy of the financial crisis, the bad loans will be 
restructured or even foreclosed with an eye toward facilitating 
corporate restructuring and improving banks' balance sheets. The 
government is financing its stimulus programs through domestic bond 
sales, as well as foreign debt and grant assistance.
    Thai monetary policy formally aims at keeping core inflation 
(excluding raw food and energy prices) between zero and 3.5 percent, 
but maintaining adequate system liquidity, keeping interest rates low, 
and stabilizing exchange rate movements are also major policy goals. 
The government uses a standard array of monetary tools but focuses on 
open market operations, particularly the repurchase market. The Thaksin 
administration has retained its commitment to inflation targeting but 
with a new emphasis on exchange rate stability. Current monetary policy 
does not target a specific level for the baht, but the government has 
said it will act to smooth volatility in the exchange rate.
2. Exchange Rate Policy
    From 1984 to 1997, the baht was pegged to a basket of currencies of 
Thailand's major trading partners, with the U.S. dollar representing 
the largest share. The exchange rate averaged 25 baht to the dollar 
during that period. Following the depletion of Thailand's foreign 
exchange reserves in an unsuccessful attempt to defend the peg, the 
currency was allowed to float in July 1997 and depreciated to 50 baht 
per dollar by January 1998. As reform measures and IMF support took 
hold, the baht stabilized and has traded in the 36 to 45 baht per 
dollar range since March 1998, settling at the 42-45 baht per level for 
most of 2001.
    The Thai government began liberalizing the exchange control regime 
in 1990 and has accepted IMF Article VII obligations. Commercial banks 
received permission to process larger foreign exchange transactions, 
and ceilings on money transfers were increased. Since 1991, Thai banks 
have offered foreign currency accounts for residents, although they are 
limited to $500,000 for individuals and $5 million for corporations 
(without conditions). After the baht was floated in July 1997, the 
government tightened conditions on foreign exchange, requiring 
customers to show evidence of foreign currency obligations to open 
foreign currency accounts. Thailand also required exporters to 
repatriate and deposit foreign exchange earnings more expeditiously. 
More recently, the government has restricted the supply of baht at any 
one time to 50 million (about $1.12 million) per non-resident counter 
party (unless there is an underlying transaction requiring the 
currency) to cut down on offshore speculation.
3. Structural Policies
    Market forces generally determine prices. Under the Price of Goods 
and Services Act of 1999, the government retains authority to set price 
ceilings for the prices of sugar and cooking gas. The government is 
also authorized to monitor the prices of fourteen additional products. 
Although in practice few commodities are subject to formal price 
controls, the government uses its control of major suppliers of 
products and services under state monopoly, such as the petroleum, 
aviation, and telecommunications sectors, to influence prices in the 
market. The government plans to sell shares in these state-owned 
enterprises to the public but will retain majority ownership in each 
sector.
    The Thai taxation system has undergone significant revision since 
1992, when a Value-Added Tax (VAT) scheme was introduced to replace a 
multi-tiered business tax system. The VAT rate was raised from 7 to 10 
percent in 1997, but lowered temporarily back to 7 percent in March 
1999 to stimulate consumption; the rate is scheduled to revert to 10 
percent on September 30, 2002. Exemptions for low revenue businesses 
were expanded in March 1999. Exporters are ``zero rated'' under the VAT 
system, but must file returns and apply for rebates. Thailand and the 
United States signed a tax treaty in November 1996 and the treaty 
entered into force in early 1998. The treaty eliminates double taxation 
and gives U.S. firms tax treatment equivalent to that enjoyed by 
Thailand's other tax treaty partners. The treaty will automatically 
terminate on January 1, 2003, however, if the United States and 
Thailand are unable to agree on an information exchange provision.
    The Board of Investment exerts wide-ranging influence on the 
formulation and implementation of trade and investment policies. It has 
advanced industrial decentralization and export promotion through the 
granting of tax holidays, import duty exemptions, and other incentives 
to foreign direct investors. Thailand has applied to the WTO for an 
extension of its local content requirements in the manufacture of milk 
and dairy products, which have been in effect since 1995.
4. Debt Management Policies
    Thailand's financial crisis resulted in part from a large private 
sector external debt burden, but these debt levels have declined 
markedly since the onset of the crisis, falling from $85 billion at the 
end of 1997 to $42 billion at the end of July 2001. Thailand entered 
the crisis with low levels of public debt, but public borrowings have 
since risen significantly as the government expended heavily to 
stabilize the financial sector and sought to stimulate the economy. At 
the end of 1997, total public sector external debt (including that of 
the Bank of Thailand) stood at $24 billion. By July 2001, the figure 
had risen to $30.9 billion. Total external debt service as a percentage 
of exports of goods and services stood at 15.7 percent at the end of 
June 2001, including 7.5 percent in public debt and 8.2 percent in 
private sector debt. (Note: Public sector external debt refers to loans 
borrowed or guaranteed by the government or state-owned enterprises 
from overseas lenders.)
    Public sector debt is mostly long-term, and divided among direct 
borrowings and loans to state-owned enterprises guaranteed by the 
government, with the latter predominating. Mounting public sector debt, 
triggered by higher budget deficits, is a concern in Thailand, and the 
government is attempting to diversify its funding sources by developing 
a domestic bond market. By June 2001, total public sector debt, 
including the non-guaranteed debt of non-financial state-owned 
enterprises, had climbed to $62.6 billion, or 55.87 percent of 
Thailand's GDP, versus $40 billion, or 40 percent of GDP, at the end of 
1997.
    Thailand consistently met the targets and performance criteria 
elaborated in its IMF stand-by arrangement, which was completed in June 
2000. The government began to repay the IMF in the fourth quarter of 
2000 and other bilateral donors in 2001.
5. Significant Barriers to U.S. Exports
    Tariffs: Thailand's high tariff structure remains a major 
impediment to market access in many sectors. A member of the World 
Trade Organization (WTO) and the ASEAN Free Trade Area (AFTA), Thailand 
has yet to complete efforts to rationalize a complicated tariff regime 
that has 44 rates. Highest tariff rates encompass locally produced 
import-competing products, including agricultural products, autos and 
auto parts, alcoholic beverages, fabrics, and some electrical 
appliances. In some cases, tariffs on unfinished products are higher 
than on related finished products. In the aftermath of the financial 
crisis, the government increased duties, surcharges, and excise taxes 
on a range of ``luxury'' imports from wine to passenger cars. However, 
the government continues to ease other import duties in line with WTO 
and AFTA commitments.
    Corn and fresh potatoes are subject to a Tariff Rate Quota (TRQ) 
that limits import levels. The restricted entry period for corn imports 
under the TRQ, generally February to June, usually ensures that U.S. 
corn is not competitive in the Thai market.
    Import Licenses: Thailand has committed to changing its import 
licensing procedures in connection with its WTO obligations. Import 
licenses still are required for 26 categories of items, down from 42 
categories in 1995-1996. Licenses are required for the import of many 
raw materials, petroleum, industrial, textiles, pharmaceuticals, and 
agricultural items. Imports of used motorcycles and parts, household 
refrigerators using CFCs, and gaming machines are prohibited. Import of 
some items not requiring licenses nevertheless must comply with 
applicable regulations of concerned agencies, including extra fees and 
certificate of origin requirements in some cases. Imports of food, 
pharmaceuticals, certain minerals, arms and ammunition, and art objects 
require special permits from relevant ministries.
    Service Barriers: In the banking sector, foreign banks are limited 
to three branches (of which two must be outside of Bangkok and adjacent 
provinces) and there are limits on expatriate management personnel, 
although foreign bankers report that requests for additional personnel 
customarily are approved. Since 1997, foreign ownership of Thai banks 
can exceed 49 percent for a period of ten years. (Foreign investors 
will not be forced to divest shares after 10 years, but will not be 
able to purchase additional shares.) Limits on foreign ownership of 
finance companies and securities companies were also liberalized in the 
aftermath of the financial crisis. Foreigners may hold majority stakes 
in Thai securities houses, although there are minimum investment 
requirements and restrictions on expatriate management.
    Telecommunications: The provision of telecommunications services is 
dominated by two state operators, the Telephone Organization of 
Thailand (TOT) and the Communications Authority of Thailand (CAT). 
Private participation is currently limited to concessions in wireless 
and fixed line sectors. The government's telecommunications master plan 
calls for the corporatization of TOT and CAT, with a view to 
privatization and coupling with strategic partners in the coming years. 
A law passed in October 2001 capped foreign ownership of domestic 
telecommunications companies at 25 percent. The possible retroactive 
impact of this provision on current private concessionaires, most of 
which already have over 25 percent foreign ownership, remains unclear. 
Thailand's WTO commitments require full market liberalization by 2006.
    Professional Services: The Alien Occupation Law reserves to Thai 
nationals certain employment, including within certain professional 
services such as accounting, architecture, law and engineering, the 
manufacture of traditional Thai handicrafts, and manual labor. All 
foreign nationals must obtain a work permit for employment.
    Standards, Testing, Labeling, and Certification: The Thai Food and 
Drug Administration (TFDA) requires permits for the importation of all 
food and pharmaceutical products. Costs, testing, duration, and demands 
for proprietary information associated with the permitting process can 
be burdensome. Labels bearing product name, description, net weight or 
volume, and manufacturing/expiration dates, printed in Thai and 
approved by the TFDA must be affixed to all imported food products.
    Investment Barriers: The U.S.-Thai Treaty of Amity and Economic 
Relations of 1966 (AER) accords U.S. citizens and businesses national 
treatment in many areas, exempting them from restrictions on foreign 
investment set out in the Alien Business Law (ABL). The AER does not 
exempt American investors from applicable restrictions in the fields of 
communications, transport, fiduciary functions, banking involving 
depositary functions, exploitation of land or other natural resources, 
and domestic trade in agricultural products. Some of these sectors are 
subject to limits on foreign equity participation, such as a 25 percent 
cap in the insurance and telecommunications sectors.
    The AER and ABL generally do not affect projects established with 
Board of Investment (BOI) promotion privileges or export businesses 
authorized under the Industrial Estate Authority of Thailand. BOI 
employs a variety of measures, including tax and duty incentives, 
guarantees against certain risks, and certain permit exemptions, to 
promote foreign investment in five favored areas: agriculture and 
agricultural products, environmental protection, technological and 
human resource development, basic transportation, infrastructure and 
services, and targeted industries. BOI seeks to steer projects to 
economically disadvantaged locations and to promote use of local 
materials in production.
    Non-Thai businesses and citizens generally are not permitted to own 
land unless given permission by the Board of Investment or unless land 
is on government-approved industrial estates. Exceptions include land 
necessary to the activities of petroleum concessionaires, part 
ownership of condominium buildings, and residences for foreign 
investors who invest a minimum of 40 million baht.
    Government Procurement Practices: Thailand is not a signatory to 
the WTO Government Procurement Agreement. Procurement regulations 
require that non-discriminatory treatment and open bidding be accorded 
to all potential bidders. However, procuring agencies are required to 
accord a 15 percent price advantage to domestic suppliers over foreign 
suppliers. In addition, they retain the right to accept or reject any 
or all bids at any time, may modify the technical requirements during 
the bidding process, and are not bound to accept the lowest bid. A 
directive from the Prime Minister's office in March 2001 urging 
ministries and state enterprises to purchase local products and employ 
local consultants as a budget-saving measure has compounded 
transparency problems. In some instances, government contracts require 
use of locally produced or assembled components.
    The government may require a counter-trade transaction on 
government procurement contracts valued at more than 300 million baht 
on a case-by-case basis, although the practice is not common. 
Restrictions on distribution by government hospitals of drugs not on 
the National List of Essential Drugs constrains the availability of 
imported products not on the list.
    Customs Procedures: The Thai Customs Department enjoys considerable 
autonomy and some of its practices appear arbitrary and irregular. 
Companies handling U.S. imports into Thailand occasionally reported 
excessive paperwork and formalities and lack of coordination between 
customs and other import-regulating agencies. Efforts to introduce a 
paperless customs system, including adoption of the World Customs 
Organization harmonized code and the use of an Electronic Data 
Interchange (EDI) system, have improved operations but are still in the 
process of being fully implemented. The pilot program for EDI became 
operational early in 1998 and the system reportedly covered 90 percent 
of Thai exports and 70 percent of imports as of October 2001. Customs 
Act amendments that went into effect January 2000 established 
transaction value as the basic standard for assessing customs duties, 
but officials reportedly are not applying the new standard in all 
cases. A government commitment to eliminate certificate of origin 
requirements for information technology (IT) imports has not been 
implemented fully, causing delays in the importation of U.S. IT 
products. Customs officials have been receptive to training programs 
offered by the U.S. private sector on streamlining customs procedures 
and implementing ``best practices'' to improve performance.
6. Export Subsidies Policies
    The government maintains several programs that benefit exports of 
manufactured products or processed agricultural products. These include 
credit at below market level on some government-to-government sales of 
Thai rice (agreed on a case-by-case basis); preferential financing for 
exporters in the form of packing credits with odd maturities or values 
otherwise unavailable in international credit markets; tax certificates 
for rebates of packing credits; and rebates of taxes and import duties 
for products intended for re-export. The Thai Ex-Im Bank currently 
offers interest rates on export credits below the prime rate offered by 
commercial banks. A 2000 law established a government office and fund 
to support small and medium enterprises, including market expansion 
abroad, but they are not operational yet.
7. Protection of U.S. Intellectual Property
    The government has made significant progress in laying the legal 
foundation for IPR protection and enhancing enforcement efforts. During 
1999 and 2000, the government passed amendments to the Trademark Act 
and the Patent Act, a Protection of Plant Varieties Act, and a 
Protection of Integrated Circuits Design Law. As of October 2001, the 
Senate and House had passed versions of a draft Trade Secrets Act, 
which await reconciliation and publication in the Royal Gazette to 
become effective. The government has drafted a Protection of Geographic 
Indications Act and an Optical Disk Factory Control Act for submission 
to the parliament. A specialized intellectual property department in 
the Ministry of Commerce has cooperated with U.S. industry associations 
to coordinate both legal reforms and enforcement efforts. A specialized 
intellectual property court established in 1997 has improved judicial 
procedures and imposed higher fines. Criminal cases generally are 
disposed of within six to twelve months from the time of a raid to the 
rendering of a conviction. An enforcement offensive commenced in June 
2001 featured strong statements of commitment by the Prime Minister and 
cabinet and high-level police officials, boosted resources for 
enforcement efforts, and an increase in the level of raids on 
production and distribution facilities.
    Despite growing enforcement activity and good cooperation with 
rights-holders, levels of piracy remain high. Thailand has been on the 
Special 301 Watch List since 1994, and in June 2001 a consortium of 
rights-holders filed a petition to have Thailand's GSP benefits revoked 
unless additional progress was achieved in IPR protection (petition 
still pending as of October 2001). Thailand is a member of the World 
Intellectual Property Organization, the Berne Convention, and the WTO 
Trade-Related Aspects of Intellectual Property (TRIPS) Agreement. 
Thailand is not a signatory to the Paris Convention or the Patent 
Cooperation Treaty, although aspects of those instruments are addressed 
by local law.
    Obstacles to effective enforcement are numerous. Resource 
limitations, especially in the wake of the financial crisis, hamstring 
police capabilities and judicial administration alike. Corruption and a 
cultural climate of leniency can complicate many phases of the legal 
process. Irregularities in police and public prosecutor procedures 
occasionally have resulted in the substitution of insignificant 
defendants for major ones and the disappearance of vital evidence. The 
frequency of raids compromised by leaks from police sources has 
declined but remains a concern. Relatively few persons are serving time 
in jail for copyright infringement, although sentences and fines 
imposed have become more severe. Defendants sometimes disappear while 
on bail, and sentences occasionally are reduced or overturned on 
grounds that rights-holders sometimes regard as questionable. Pirates, 
including those associated with transnational crime syndicates, have 
responded to stepped up levels of enforcement with intimidation against 
authorities and rights-holders.
    Patent examinations can take more than five years. Recent changes 
to Thailand's Safety Monitoring Program (SMP) in the pharmaceutical 
sector allow generic versions of a non-patented product go into SMP and 
be marketed even while original innovative products are in SMP, giving 
rise to data protection concerns. For products with a patent pending, 
civil remedies to recover damages suffered by the patent-holder during 
the pending of its application are available after the patent is 
granted but are deemed inadequate by rights-holders. The government 
retains compulsory licensing authority in some instances but has yet to 
exercise it. The Government Pharmaceutical Office, a significant 
producer of pharmaceutical products in Thailand, is exempt from 
registration and approval requirements in manufacturing and 
distributing medicine.
    Although trademark-holders have won several notable cases, civil 
remedies remain largely untested as most rights-holders, especially 
copyright holders, choose to pursue criminal sanctions against 
violators. Rights-holders report that police cooperation is good and 
the frequency of raids is climbing. However, police undertake little 
enforcement apart from cases initiated by rights-holders. Effective 
prosecutions are labor-intensive for rights-holders, who investigate, 
participate in raids, help warehouse confiscated property, and prepare 
documentation for prosecution in a typical case.
    The U.S. pharmaceutical, film, and software industries estimate 
lost sales to American rights-holders at over $200 million annually. 
Although the government has made progress in cultivating public support 
for strong intellectual property protection, the market for pirated 
products remains strong.
8. Worker Rights
    a. The Right of Association: The Labor Relations Act of 1975 gives 
workers in the private sector most internationally recognized labor 
rights, including the freedom to associate. They may form and join 
unions and make policy without hindrance from the government and 
without reprisal or discrimination for union activity. In practice, 
however, cases of management action against union organizers occur, and 
employers use loopholes in the law to fire union organizers. In May, 
one such instance was accepted by the International Labor 
Organization's Committee on Freedom of Association. Unions in Thailand 
may have relationships with unions in other countries, and with 
international labor organizations. The State Enterprise Labor Relations 
Act, enacted in early 2000, restored to state enterprise workers the 
right to form and join trade unions.
    b. The Right to Organize and Bargain Collectively: Thai workers 
have the right to bargain collectively over wages, working conditions, 
and benefits. About 900 private sector unions are registered in 
Thailand. Civil servants cannot form unions. However, they may be 
members of employee associations, state enterprise employees, essential 
workers (telecommunications, electricity, transportation, education, 
and health care personnel), and civil servants may not strike. Though 
legally recognized, collective bargaining is unusual in Thailand, and 
industry-wide collective bargaining is all but unknown. However, 
representatives of public sector associations and private sector unions 
do sit on various government committees dealing with labor matters, and 
are influential in setting national labor policies, such as the minimum 
wage.
    c. Prohibition of Forced or Compulsory Labor: The Thai Constitution 
prohibits forced or compulsory labor except in cases of national 
emergency, war, or martial law. However, there are credible reports of 
sweatshops in which employers prevented workers from leaving the 
premises. There are no estimates of the numbers of such informal sector 
sweatshops.
    d. Minimum Age for Employment of Children: The new 1998 Labor 
Protection Act went into effect on August 20, 1998. The act raises the 
minimum age for employment in Thailand from thirteen to fifteen. 
Persons between the ages of 15 to 18 are restricted to light work in 
non-hazardous jobs, and must have the permission of the Department of 
Labor in order to work. Nighttime and holiday employment of non-adults 
is prohibited. The new national education bill passed in August 1999 
gives the children the right to free primary education through grade 
12. Compulsory education is enforced through grade nine.
    e. Acceptable Conditions of Work: Working conditions vary widely in 
Thailand. Large factories generally meet international health and 
safety standards, though there have been serious lapses involving loss 
of life. The government has increased the number of inspectors and 
raised fines for violators, but enforcement is still not rigorous. The 
usual workday in industry is eight hours. Wages in profitable export 
industries often exceed the legal minimum. However, in the large 
informal industrial sector wage, health, and safety standards are low 
and regulations are often ignored. Most industries have a legally 
mandated 48-hour maximum workweek. The major exceptions are commercial 
establishments, where the maximum is 54 hours. Transportation workers 
are restricted to 48 hours per week.
    f. Rights in Sectors with U.S. Investment: Labor rights are 
generally respected in industrial sectors with heavy investment from 
U.S. companies. Most U.S. firms in Thailand work with internal workers' 
representatives or unions, and relations are constructive. With few 
exceptions, U.S. companies strictly adhere to Thai labor laws.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  2,666
Total Manufacturing.........  ...........  2,767
  Food & Kindred Products...  105          .............................
  Chemicals & Allied          399          .............................
   Products.
  Primary & Fabricated        69           .............................
   Metals.
  Industrial Machinery and    1,263        .............................
   Equipment.
  Electric & Electronic       509          .............................
   Equipment.
  Transportation Equipment..  93           .............................
  Other Manufacturing.......  329          .............................
Wholesale Trade.............  ...........  318
Banking.....................  ...........  650
Finance/Insurance/Real        ...........  421
 Estate.
Services....................  ...........  70
Other Industries............  ...........  232
    Total All Industries....  ...........  7,124
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 EUROPE

                              ----------                              


                             EUROPEAN UNION

                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................    8,464.5     7,891.5     8,280.7
  Real GDP Growth (pct).............        2.5         3.4         3.1
  GDP by Sector:
    Agriculture.....................        N/A         N/A         N/A
    Manufacturing...................        N/A         N/A         N/A
    Services........................        N/A         N/A         N/A
    Government......................        N/A         N/A         N/A
  Per Capita GDP (thousands of US$).       22.4        20.8        21.9
  Total Employment (Annual                  1.6         1.6         1.7
   percentage change)...............
  Unemployment Rate (pct)...........        9.2         8.4         7.8
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2/M3).......        9.3         N/A         N/A
  Consumer Price Inflation..........        1.2         2.1         2.1
  Exchange Rate (USD/ECU annual            1.06        0.93         N/A
   average).........................
 
Balance of Payments and Trade:
  Total Exports FOB.................      808.5       870.8         N/A
    Exports to United States........      192.5       214.9         N/A
  Total Imports CIF.................      823.7       953.8         N/A
    Imports from United States......      167.4       183.6         N/A
  Trade Balance.....................      -15.2       -83.0         N/A
    Balance with United States......       25.1        31.3         N/A
  External Public Debt (pct of GDP).       67.7        64.1        60.9
  Fiscal Deficit/GDP (pct)..........       -0.7         1.2        -0.2
  Current Balance/GDP (pct).........        0.3        -0.2        -0.3
  Debt Service Payments/GDP (pct)...        N/A         N/A         N/A
  Gross Official Reserves (billions       439.6         N/A         N/A
   of US$)..........................
  Aid from United States \2\........        N/A         N/A         N/A
  Aid from Other Sources............        N/A         N/A         N/A
------------------------------------------------------------------------
\1\ Estimates.
\2\ Military aid = 0
 
Source: European Commission.

1. General Policy Framework
    The European Union (EU), the largest U.S. trade and investment 
partner, is a supranational organization comprised of fifteen European 
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, 
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, 
and the United Kingdom. It is unique in that its member states are 
ceding to it increasing authority over their domestic and external 
policies. Individual member state policies, however, may still present 
problems for U.S. trade, in addition to EU-wide actions.
    The EU's authority is clearest in trade-related matters, 
particularly ``traditional'' trade issues. As a long-standing customs 
union, the EU represents the collective external trade interests of its 
member states in the World Trade Organization (WTO). Internally, the 
free movement of goods, services, capital, and people within the EU is 
guaranteed by the Single Market program, an effort to harmonize member 
state laws in order to eliminate non-tariff barriers to these flows. 
Externally, with respect to services, investment and intellectual 
property rights issues, competency for policy and negotiations is 
shared between the EU and its member states. Beyond economics and 
trade, the EU is developing its other two ``pillars'': the common 
foreign and security policy (CFSP), and justice and home affairs 
(police and judicial cooperation).
    The EU Treaty provides for the creation of an Economic and Monetary 
Union (EMU) among the EU member states, which went into effect on 
January 1, 1999 with the launch of a single currency, the euro. The 12 
participating countries (Denmark, Sweden and the United Kingdom are 
currently not included) have a single monetary policy conducted by the 
European System of Central Banks (ESCB), led by the Frankfurt-based 
European Central Bank (ECB). Member states generally achieved the 
``convergence criteria'' for EMU: maximum deficits of three percent of 
GDP, maximum gross national debt of 60 percent of GDP, inflation and 
interest rate levels no more than one and a half percentage points 
above the average of the three lowest rates among the member states, 
and two years of relative exchange rate stability. Since the euro's 
launch they have adhered to their Stability and Growth Pact's limit on 
excessive budget deficits (three percent of GDP) by seeking to achieve 
balanced budgets by 2002, although this target is likely to be delayed 
for some countries due to the current economic slowdown.
    The Union's budget, consisting mainly of member state contributions 
because the EU has no independent taxing authority, is limited to 1.27 
percent of the combined GDP of the 15 member states. Expenditures of 
roughly $90 billion are divided generally among agricultural support 
(40 percent), ``structural'' policies to promote growth in poorer 
regions (40 percent), other internal policies (5 percent), external 
assistance (5 percent) and administrative and miscellaneous (5 
percent).
    The EU is currently preparing for the fifth enlargement and is 
negotiating accession agreements with twelve countries: Bulgaria, 
Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, 
Poland, Romania, the Slovak Republic, and Slovenia. The best prepared 
of these countries are expected to join the EU by 2004. Turkey is also 
a formal candidate country but has not yet begun accession 
negotiations. Work is underway within the EU to update and reform the 
existing institutional structures to accommodate these potential new 
members.
2. Exchange Rate Policy
    The third and final stage of EMU began on January 1, 1999, when 11 
member states irrevocably fixed their exchange rates to the euro 
(Greece joined the monetary union on January 1, 2001). Financial 
transactions are now available in euros through commercial banking 
institutions. Euro notes and coins will be introduced on January 1, 
2002, fully replacing national by the end of February 2002. During the 
transition period, there will be dual circulation between the euro and 
the respective national currencies, except in the case of Germany.
    The ECB is responsible for setting monetary policy in the euro 
area, while national central banks will continue to conduct money 
market operations and foreign exchange intervention under its 
direction. Per requirement of the Treaty, the ECB policy is focused on 
maintaining price stability. The euro follows a floating exchange rate 
regime against other currencies, with the exception of the currency of 
Denmark which participates in the new Exchange Rate Mechanism (ERM-2) 
limiting its fluctuation against the euro to ( 2.25 percent. EMU has 
provisions to create additional exchange rate arrangements, if the 
member states desire to do so. However, there are no current plans to 
seek such arrangements.
3. Structural Policies
    Single Market: The legislative program removing barriers to the 
free movement of goods, services, capital, and people is largely 
complete, although there are delays in member state implementation of 
Community rules and national differences in the interpretation of those 
rules. The net effect of the Single Market program has been freer 
movement, fewer member state regulations for products and service 
providers to meet, and real consolidation of markets. Nonetheless, some 
aspects of the program have created problems for U.S. exporters (see 
below).
    Tax Policy: Tax policy remains the prerogative of the member 
states, which must approve by unanimity any EU legislation in this 
domain. EU legislation to date has been aimed at eliminating tax-
induced distortions of competition within the Union. Legislation 
focuses on harmonizing value-added and excise taxes, eliminating double 
taxation of corporate profits, interest, and dividends and facilitating 
cross-border mergers and asset transfers. The EU countries are working 
on greater coordination of their tax policies, including the taxation 
of savings interest of non-residents, in addition to agreeing to a Code 
of Conduct to curb ``harmful'' business taxation as well as harmonizing 
the application of VAT to e-commerce transactions.
4. Debt Management Policies
    The EU raises funds in international capital markets, but does so 
largely for cash management purposes and thus does not have any 
significant international debt. The European Investment Bank, 
reportedly one of the world's largest multilateral financing banks, 
also raises funds in international markets. The bank has an extremely 
favorable balance sheet and retains the highest credit rating. Finally, 
the EU has used its borrowing power to lend to key developing 
countries, especially in Central Europe and the newly independent 
states of the former Soviet Union. To date, it has consistently taken a 
hard line on the rescheduling of EU debt by borrowing countries.
5. Significant Barriers to U.S. Exports
            Import Policies
    Import, Sale, and Distribution of Bananas: On April 11, 2001, the 
U.S. goverment and the European Commission reached an agreement to 
resolve their long-standing dispute over the EU's banana import regime. 
The new regime, which is expected to enter into force on January 1, 
2002, will provide a transition to a tariff-only system by 2006. During 
the transition, bananas will be imported into the EU through import 
licenses distributed on the basis of past trade. In the past, two EU 
banana regimes were challenged successfully in the WTO, prompting U.S. 
retaliation worth $191.4 million against EU products. Under the terms 
of the agreement, the United States has suspended sanctions and will 
definitively lift the sanctions upon WTO issuance of an Article XIII 
waiver.
    Restrictions Affecting U.S. Wine Exports to the EU: Current EU 
regulations require imported wines to be produced only by specifically 
authorized oenological practices. Since the mid-1980s, U.S. wines have 
entered the EU market under a series of ``derogations'' granting EU 
regulatory exemptions. Negotiations on an agreement with the EU to 
ensure the EU market remains open to U.S. wine have been underway for 
several years but agreement has not been reached on a number of key 
issues, including in particular mutual recognition of oenological 
practices. The United States does not believe EU legislation on 
``traditional expressions'' (terms such as ``vintage'' or ``tawny'') is 
consistent with the WTO Agreement on Trade Related Intellectual 
Property Rights (TRIPS), and therefore does not believe this area is 
appropriate for bilateral negotiation.
            Services Barriers
    EU Broadcast Directive: The EU's 1989 Broadcast Directive 
(Television without Frontiers) provides that a majority of 
entertainment broadcast transmission time be reserved for European-
origin programs ``where practicable'' and ``by appropriate means.'' 
Concerns have surfaced in EU accession negotiations where acceding 
countries are being held to a higher standard than are currently EU 
member states. The United States continues to monitor developments with 
respect to the Broadcast Directive, which is scheduled to undergo a 
revision in 2002.
    Airport Ground-Handling: In October 1996, the EU issued a Directive 
to liberalize the market to provide ground-handling services at EU 
airports above a certain size by January 1, 1998. While generally 
welcoming this move, U.S. airline companies and ground-handling service 
providers remain concerned that airports can apply for exemptions to 
continue to have a monopoly service provider until January 1, 2002, and 
can also limit the number of firms, which can provide certain services 
on the airport tarmac (ramp, fuel, baggage and mail/freight handling). 
These potential barriers are partially offset by more liberal bilateral 
air service agreements, which the United States concluded with 
individual EU member states.
    Postal Services: U.S. package and express mail service providers 
remain concerned that the prevalence of postal monopolies in many EU 
countries restricts their market access and subjects them to unequal 
conditions of competition. The Commission's May 2000 proposal to 
further limit the scope of the services that can be reserved for 
monopoly provision has faced stiff opposition in the European 
Parliament and some EU member states. It would require member states to 
reduce weight-limits on letters and direct mail from 350g to 50g by 
January 1, 2003. It would also require a reduction in price limits from 
five times the standard tariff to 2.5 times, and open up competition in 
express mail services and outward cross-border mail. However, in 
November 2000, the European Parliament's Regional Policy, Transport, 
and Tourism Committee voted that state monopolies could continue on all 
letter mail below 150g. If Parliament's vote stands, only 10 percent of 
the postal markets will be liberalized from 2003, instead of the 20 
percent favored by the Commission.
            Standards, Testing, Labeling and Certification
    EU member states still have widely differing standards, testing and 
certification procedures in place for some products. These differences 
may serve as barriers to free movement of these products within the EU 
and can cause lengthy delays in sales due to the need to have products 
tested and certified to account for differing national requirements. 
Nonetheless, the advent of the EU's ``new approach,'' which streamlines 
technical harmonization and the development of standards for certain 
product groups, based on ``essential'' health and safety requirements, 
generally points towards the harmonization of laws, regulations, 
standards, testing, and certification procedures within the EU. While 
the United States supports legitimate health and safety measures, we 
have concerns that the European standardization process lacks 
transparency and remains generally closed to U.S. stakeholders' direct 
participation.
    Businesses on both sides of the Atlantic have highlighted the 
importance of standards issues in U.S.-EU trade relations, in the 
context of the Transatlantic Business Dialogue and other fora. Although 
some progress has been made, a number of problems have caused concern 
to U.S. exporters. These include: legislative delays, inconsistent 
member state interpretation and application of legislation, the ill-
defined scope of various Directives, unclear marking and labeling 
requirements for regulated products, and a frequent tendency to rely on 
design-based rather than performance-based standards. Such problems can 
complicate and impede U.S. exports to the EU.
    Mutual Recognition Agreements: In order to reduce standards-related 
trade barriers, the United States and the EU are committed to advancing 
joint efforts to promote mutual recognition, equivalency, and 
harmonization of standards. In 1998, both governments negotiated a 
Mutual Recognition Agreement (MRA) covering several important sectors 
(medical devices, pharmaceuticals, telecommunications equipment, 
electromagnetic compatibility, electrical safety, and recreational 
craft) allowing for conformity assessments to be performed in the 
United States to EU standards and vice versa. Both sides continue to 
work on issues related to the implementation of this MRA. Additionally, 
a separate MRA covering marine safety equipment was signed in June 2001 
by the United States and the EU under the Transatlantic Economic 
Partnership (TEP) and negotiations are continuing on MRAs for insurance 
services, architects and engineers. Finally, the United States and EU 
continue to work through TEP in developing a joint text on Guidelines 
for Regulatory Cooperation.
    PECAs: The EU has concluded Protocols to the Europe Agreements on 
Conformity Assessment and Acceptance of Industrial Products (PECAs) 
with several Central and East European (CEE) countries that are 
candidates for EU accession. PECA agreements with the Czech Republic 
and Hungary entered into force in June and July 2001, respectively. 
PECA Agreements with Latvia and Lithuania have been initialed, but no 
implementation dates have been set. PECAs are being negotiated with six 
other countries in the CEE region.
    Under a PECA, the EU and the accession candidate agree to recognize 
the results of each other's designated conformity assessment bodies/
notified bodies, thereby eliminating the need for further product 
testing of EU products upon importation into that country. Only those 
products exported to the third country which are: (i) of EU origin, and 
(ii) certified by an EU notified body with the CE mark illustrating 
compliance with EU standards, will benefit from the provisions of the 
PECA. The United States has raised concerns about the PECA rule of 
origin, and the possible discriminatory effects of this provision, in a 
variety of WTO and bilateral fora, as well as with PECA partners.
    Biotechnology Product Approvals and Labeling: The EU's de facto 
moratorium on approvals for products made from modern biotechnology is 
adversely affecting U.S. exports of corn and oilseed rape (canola). In 
July 2001, the European Commission agreed on proposals for 
traceability, labeling, and biotech food and feed authorizations. These 
new proposals and draft Directive 01/18 (formerly known as 90/220) 
encompass the overall Commission strategy to restart the biotech 
approval process. The draft legislation contains three key parts: 
process-based labeling for food and feed products that contain or are 
derived from biotech ingredients, provisions for event-specific 
identity markers, and a tolerance for adventitious (unintended or 
accidental) presence of unapproved varieties. It is now up to the 
Commission to restart approvals based on companies' voluntary 
commitments to implement key elements of the draft proposals. There are 
concerns on the part of industry that many aspects of the new proposals 
would be unworkable, so that even if approvals were restarted, 
voluntary implementation of the Regulations as written would prove 
impossible.
    Hormone-Treated Beef: The WTO has ruled consistently against the 
EU's ban on hormone-treated beef, most recently in early 1998. The EU 
did not come into compliance by May 13, 1998 as required, citing a need 
to perform additional risk assessments (which the WTO did not say were 
needed). The United States has therefore imposed WTO-approved 
retaliation worth $116.8 million per year, pending EU compliance. A 
large body of scientific evidence indicates these products are safe as 
used. Discussions with the EU to resolve this matter are continuing.
    Specified Risk Material Ban: In May 2001, the EU adopted new 
legislation (Regulation 999/2001) affecting third-country requirements 
to remove specified risk materials (SRMs). The so-called TSE 
(Transmissible Spongiform Encephalopaties) Regulation replaces the 
previous SRM ban and includes transitional measures affecting imports 
as of July 1, 2001. These measures include certification that products 
of bovine, ovine and caprine origin do not contain SRMs or mechanically 
recovered meat and that the animals were not slaughtered by pithing or 
gassing. Additional transitional rules affecting imports entered into 
effect on October 1, 2001. These include extending the list of products 
that are obligated to meet the SRM requirements to include: rendered 
fats, gelatin, petfood, bones and bone products and raw material for 
the manufacture of animal feedstuffs. Exemptions from the above 
requirements are given to countries whose geographic BSE risk 
classification (GBR) is one (free from BSE). The GBR for the United 
States is two (provisionally free), therefore exporters from the United 
States will be required to certify SRM removal.
    Under the TSE legislation, countries are required to submit 
information for classification of TSE status. This status is based on 
the OIE (International Organization of Epizootics) criteria and will be 
determined by the countries' current GBR status as well as risk 
management measures, education, notification, surveillance and 
monitoring, and an affective feed ban in place. Country applications 
must be submitted to the Commission by January 1, 2002, and the 
Commission will determine third-country classifications by July 1, 
2002. Under current OIE criteria, countries classified as either one or 
two are not required to remove SRMs. The status of the United States 
will be reviewed in this context.
    Antimicrobial Treatments for Poultry: In 1997, the EU introduced a 
sanitary regime concerning poultry that did not permit the use of 
antimicrobial treatments, which most U.S. poultry producers use to 
reduce the level of pathogens in their products. U.S. poultry exports 
to the EU of around $50 million per year have since disappeared. Based 
on a 1998 study by the EU of the safety and efficacy of antimicrobial 
treatments, which concluded that some treatments could be used as a 
supplementary measure, the U.S. government has requested that the EU 
approve the use of certain antimicrobial treatments.
    Emergency Measures for Coniferous Non-Manufactured Wood Packing 
Material: The European Commission has adopted emergency measures 
requiring the treatment and marking of all new and used coniferous 
(e.g. pine, spruce, fir) non-manufactured wood packing material (NMWP) 
originating in the United States, Canada, China, or Japan beginning 
October 1, 2001, to prevent the introduction of the pinewood nematode. 
The pinewood nematode is a microscopic eelworm which has caused 
extensive mortality in pine trees in Japan and China. Work is currently 
underway in the United States to set up a program to meet the measures 
adopted by the EU. The United States has chosen to utilize the heat 
treated or kiln-dried mitigation as the preferred option to eliminate 
this pest on NMWP. However, the industry is likely to utilize 
fumigation as well. The International Plant Protection Convention, 
which is recognized by the World Trade Organization as the official 
plant protection body, will likely adopt measures very similar to those 
of the EU in April 2003 for all NMWP (softwoods and hardwoods).
    Hushkits or New Engine Modified and Recertificated Aircraft: In 
1997, pressure on EU authorities to reduce noise levels resulted in a 
European Commission (EC) effort to develop an EU-wide noise standard. 
When it became clear that it would be politically impossible to agree 
on such a standard, the EU member states adopted a regulation limiting 
the registration and use within the EU of certain aircraft that had 
been modified and recertificated to be in full compliance with the 
existing performance-based standard adopted by the International Civil 
Aviation Organization (ICAO), and to which the EU member states had 
agreed. The EU regulation that entered into effect on May 4, 2000, 
establishes a design standard that restricts the operation of those 
recertificated aircraft that were equipped with ``hushkit'' noise 
reduction devices or ``re-engined'' with engines of a certain design. 
Ostensibly crafted to reduce noise around European airports, the 
regulation in effect is a trade barrier and has little impact on noise. 
It restricts operation of aircraft based on a design standard, and 
disproportionately impacts U.S. manufacturers and airlines. The United 
States has asked ICAO to resolve this dispute pursuant to Article 84 of 
the 1944 Convention of International Civil Aviation (Chicago 
Convention). With strong support from the United States, the 33rd 
Assembly of ICAO has unanimously adopted a Resolution that establishes 
an international framework on how states should manage noise around 
airports called the Balanced Approach. The European Commission has 
proposed a Directive that will, hopefully, reflect the principles of 
the ICAO Resolution and replace the hushkits Regulation before April 1, 
2002--the date that the Regulation is scheduled to be implemented.
    New Aircraft Certification: The United States continues to be 
concerned by the possibility that European aircraft certification 
standards are being applied so as to impede delivery of qualified 
aircraft into Europe. Processes and procedures currently employed by 
the European Joint Aviation Authorities (JAA) appear cumbersome and 
arbitrary, and in any event cannot be uniformly enforced in EU member 
states. The United States desires a transparent, equitable process for 
aircraft certification that is applied consistently on both sides of 
the Atlantic according to the relevant bilateral airworthiness 
agreements. The EU is moving forward with the creation of a European 
Aviation Safety Agency (EASA). The United States wants to ensure that 
decisions made by this agency are based on technical criteria and that 
safety and certification functions are kept strictly separate from 
commercial or economic policy considerations.
    Electrical and Electronic Equipment (EEE): The European Commission 
(DG Enterprise) is developing a draft Directive that would 
comprehensively regulate the product design of electrical and 
electronic equipment. It would be issued as a ``new approach'' 
Directive, outlining so-called essential requirements that could be met 
through harmonized European standards. Unofficial versions of the DG 
Enterprise draft text have been shared selectively in Brussels and a 
formal proposal is expected before the end of 2002. While still 
assessing this proposal, U.S. industry is concerned that the draft has 
the potential to interfere with design flexibility, delay new product 
development and introduction, and impose extensive administrative 
burdens.
    Waste Management: In June 2001, the EU Council of Ministers reached 
political agreement on two related proposals: a Directive focusing on 
the ``take back'' and recycling of discarded equipment (known as Waste 
from Electrical and Electronic Equipment or ``WEEE''); and a Directive 
banning the use of certain substances (lead, mercury, cadmium, certain 
flame retardants) in new electrical and electronic equipment from 
January 1, 2007, (known as Restrictions on the Use of Hazardous 
Substances or ``RoHS''). A formal Council 'common position' was adopted 
in December 2001. The United States supports the drafts' objectives to 
reduce waste and the environmental impact of discarded products. The 
United States has expressed concerns, however, that the proposals 
lacked transparency in their development and would adversely affect 
trade in products where viable substitutes may not exist. The U.S. 
government will continue to closely monitor these proposals as they 
proceed through the legislative process to ensure that they will not 
unreasonably restrict trade
    Acceleration of the Phase-Out of HCFCs: The EU adopted Regulation 
2037/2000, a new and stricter Regulation for phasing-out all ozone 
depleting substances in the EU than that agreed under the Montreal 
Protocol. The U.S. government actively opposed early drafts, which 
proposed phase-outs of HCFCs by 2001 without yielding appreciable 
environmental benefits. The existing Regulation requires the air 
conditioning industry to phase out its use of HCFCs by 2001 while most 
other HCFC uses may continue until 2004. Small (100 kW) fixed air 
conditioners and heat pump units have been exempted from the initial 
phase-out.
    EU Chemicals Policy: In its White Paper ``Strategy for a Future 
Chemicals Policy'', the European Commission proposes a new and single 
system for assessing existing and new chemical substances called REACH 
(Registration, Evaluation, and Authorization of Chemicals). Under this 
new system, the burden for testing chemicals and carrying out risk 
assessments will shift to companies and importers, and they will also 
be required to make this information available to a central database 
run by the European Chemicals Bureau. In addition, the new system will 
extend data requirements to downstream users of chemicals. Potential 
implications of this new policy for U.S. business include the 
administrative burden of registering substances, the high cost and 
limited timeframe to carry out this testing, intellectual property 
rights issues linked to the release of test data, and the possible ban 
of some chemical substances based on the ``precautionary principle.'' 
The U.S. government is actively monitoring this issue and has advocated 
full transparency and early dialogue with all interested stakeholders.
            Investment Barriers
    The European Union and its fifteen member states provide one of the 
most open climates for U.S. direct investment in the world, with well-
established traditions concerning the rule of law and private property 
rights, transparent regulatory systems, freedom of capital movements 
and the like. Traditionally, member state governments have been 
responsible for policies governing non-EU investment. However, in the 
1993 Maastricht Treaty, partial competence was shifted to the EU. 
Member state policies existing on December 31, 1993, remain effective, 
but can be superseded by EU law. In general, the EU supports the idea 
of national treatment for foreign investors, arguing that any company 
established under the laws of one member state must, as a ``Community 
company,'' receive national treatment in all member states regardless 
of ultimate ownership. However, some restrictions on U.S. investment do 
exist under EU law.
    Ownership Restrictions: The right to provide aviation transport 
services within the EU is reserved to firms majority-owned and 
controlled by EU nationals. The right to provide maritime transport 
services within certain EU member states is also restricted.
    Reciprocity Provisions: The ``reciprocal'' national treatment 
clause found in EU banking, insurance and investment services 
Directives allows the EU to deny a third-country financial services 
firm the right to establish a new business in the EU if it determines 
that the investor's home country denies national treatment to EU firms. 
U.S. firms' right to national treatment in this area was reinforced by 
the EU's GATS commitments.
    Under the 1994 Hydrocarbons Directive, the notion of reciprocity 
may have been taken further to require ``mirror-image'' reciprocal 
treatment, under which an investor may be denied a license to explore 
for and exploit hydrocarbon resources if its home country does not 
permit EU investors to engage in activities under circumstances 
``comparable'' to those in the EU. It should be noted, however, that 
thus far no U.S.-owned firms have been affected by these reciprocity 
provisions.
    Access to Government Grant Programs: The EU does not preclude U.S. 
firms established in Europe from access to EU-funded research and 
development grant programs, although in practice, association with a 
``European'' firm is helpful in winning grant awards.
    Anti-Corruption: Per EU Treaty Article 280, the EU and its member 
states are jointly responsible for the fight against fraud and 
corruption affecting the EU's financial interests. A detailed overview 
of EU and member state achievements in this regard (e.g. legislation 
protecting the euro against counterfeiting; public procurement 
legislation introducing a compulsory mechanism for excluding tenderers 
convicted of fraud/corruption) is provided in the Commission's year 
2000 annual report on the fight against fraud. This report, presented 
in May 2001, is available on-line at http://europa.eu.int/comm/anti--
fraud/documents/ annual--reports/index--en.htm. All but one EU member 
state, Ireland, has ratified the OECD Convention on combating bribery 
of foreign public officials in international business transactions. The 
implementing legislation of some countries, however, appears to fall 
short of the Convention's requirements.
            Government Procurement
    The EU public procurement market is regulated by four ``classic'' 
Directives: public works, public supplies, public services and 
utilities. The Directives cover contracts above a certain threshold in 
all public sectors except utilities, which is regulated by a separate 
Directive applicable to private as well as public undertakings. Large 
EU tenders for public works/supplies are open to American companies and 
will remain so under the terms of the Government Procurement Code. 
However, some contract opportunities in the utilities sector (water, 
transport, and telecommunications) are closed to U.S.-based companies 
because of certain articles in EU law permitting a local content 
requirement of 50 percent. Moreover, in the utilities sector, 
preference must be given to an EU bid over a non-EU bid if the bids are 
equivalent and the price difference is less than three percent.
    EU procurement rules are in the process of being reworked and 
simplified. Amendments include the clarification of existing Community 
Directives by merging the Supplies, Services and Works Directives. The 
second aim of the reform is to adapt procurement rules to modern 
administrative needs. Rules would be softened for complex contracts, 
where a dialogue between contracting authorities and tenderers is 
envisaged to determine the contract conditions. In addition, 
contracting authorities would be able to specify their requirements in 
terms of performance and not only in terms of standards, which would 
make it easier for U.S. firms to bid on EU tenders. Lastly, the new 
proposal will exclude telecommunications from the Utilities Directive, 
and provides for the exclusion of sectors such as water and electricity 
once liberalization is achieved in these areas. The direct consequence 
of this move is that neither public nor private telecommunications 
operators will have to follow procurement rules when awarding 
contracts, enabling U.S. firms to bid on them. (Note that in 1998 the 
Commission issued an interpretive Communication in which it said that 
since most member states had achieved full competition in the area of 
telecommunications, this sector was to be excluded from the Utilities 
Directive).
    The changes proposed by the European Commission are currently being 
reviewed by the European Parliament. Parliamentary sources indicated 
that it is unlikely to be fully approved before the end of November 
2001. Various Parliamentary committees have submitted approximately 400 
amendments to promote ``green'' procurement practices, such as specific 
production processes, eco-labels and environmental auditing 
certifications, as well as provisions designed to link the procurement 
procedure to social and labor law. One of the most contentious 
amendments submitted by the European Parliament would increase the 
level of thresholds of application of the Directives. Once the 
Parliament comes to agreement on these issues, it will submit the 
amended proposals to the Council, which will then work to find a common 
position with the Parliament and the Commission. This process may last 
until the end of 2002.
6. Export Subsidies Policies
    Government Support for Airbus: Since the inception of Airbus in 
1967, the Airbus member governments (France, Germany, Spain and the 
United Kingdom) have provided massive direct subsidies to their 
respective member companies to aid in the development, production and 
marketing of the Airbus family of large civil aircraft. These subsidies 
have enabled Airbus to garner approximately 50 percent of new orders 
over the last three years. The Airbus governments continue to subsidize 
their member companies and have offered financial support for the 
development of the A380 ``superjumbo'' aircraft. European officials 
have claimed that member states' support will be in compliance with the 
1992 bilateral Agreement on Large Civil Aircraft. However, the United 
States believes that government support of Airbus raises serious 
concerns about member state adherence to their bilateral and 
multilateral obligations in this sector, including the 1995 WTO 
Agreement on Subsidies and Countervailing Measures (SCM). It has urged 
the Airbus governments to ensure the terms and conditions of their 
support for the A380's development are consistent with commercial 
terms, reflecting the fact that Airbus is now a highly competitive 
global producer of aircraft. Discussions on this issue are expected to 
continue in 2002.
    Shipbuilding Subsidies: Responding to pressure from the 
shipbuilding industry, the United States, in 1994, successfully 
brokered an OECD agreement to eliminate subsidies that were distorting 
the world ship market. Following the non-ratification of the agreement 
by the U.S. Senate, the EU adopted its own Shipbuilding Directive in 
May 1998. In accordance with this Directive, EU shipbuilding subsidies 
were eliminated as of December 31, 2000. In July 2001, the European 
Commission put forward a proposed Regulation setting up a ``temporary 
support mechanism'' for those segments of the EU shipbuilding industry 
(container ships and products and chemical tankers) found to be 
considerably injured by unfair trade practices of Korean shipyards. The 
proposed Regulation would enter into effect after initiation of a WTO 
dispute settlement proceeding against Korea and would expire with the 
conclusion of the WTO proceeding, or in any case on December 31, 2002. 
EU member states still have to formally approve the Commission's 
proposal.
7. Protection of U.S. Intellectual Property
    The EU and its member states support strong protection for 
intellectual property rights (IPR). EU member states are members of all 
the relevant World Intellectual Property Organization (WIPO) 
conventions, and they and the EU regularly join with the United States 
in encouraging other countries to adopt and enforce high IPR standards, 
including those in the WTO Agreement on Trade-related Aspects of 
Intellectual Property Rights (TRIPS). However, there are a few member 
states with whom the United States has raised concerns, either through 
Special 301 or WTO Dispute Settlement Procedures, about failure to 
fully implement the TRIPS Agreement.
    Patents: Patent filing and maintenance fees in the EU and its 
member states are significantly more expensive than in other countries 
including the United States. In an effort to introduce more reasonable 
costs, the European Patent Office (EPO) reduced fees for filing by 20 
percent in 1997. In July 2000, the European Commission proposed a 
Regulation to establish a European Community (EC) patent that, once 
granted, would be valid in all 15 EU member states without additional 
costly translations. At present, the Regulation is being considered by 
a Council working group, which hopes to complete its work by the end of 
2001. Internal Commission disagreement has blocked progress on a 
parallel effort to propose an EC software patent. Patent protection for 
biotechnological inventions is governed by a 1998 Directive harmonizing 
national member state rules in this area. This Directive is still in 
the process of transposition.
    Trademarks: Registration of trademarks with the European Community 
trademark office (Office for Harmonization in the Internal Market, or 
OHIM) began in 1996. OHIM, located in Alicante, Spain issues a single 
Community trademark with is valid in all 15 EU member states.
    Madrid Protocol: The WIPO Madrid Protocol, negotiated in 1989, 
provides for an international trademark registration system permitting 
trademark owners to register in member countries by filing a 
standardized application. EU accession to the Protocol is hampered by 
Spanish objections, but member states in favor of EU accession hope to 
persuade Spain to drop its opposition.
    Geographical Indications (GIs): In 1999, the United States 
initiated a WTO dispute settlement case against the EU, based on 
apparent TRIPS deficiencies in EU Regulation 2081/92 governing 
geographical indications for agricultural products and foodstuffs. The 
regulation denies nations treatment to foreign GIs. Under the 
regulation, only domestic GIs can be registered; foreign GIs cannot be 
registered and are thus ineligible for protection. Further, the 
regulation permits dilution and even cancellation of trademarks when a 
GI is created later in time. At the most recent U.S.-EU consultations 
on this issue, held in July 2001, the EU indicated it is in the process 
of amending certain articles of the regulation so as to bring those 
articles into compliance with the TRIPS Agreement. This would fix many 
of our concerns. In addition, we have asked for further amendments, and 
the EU has agreed to take our request into consideration. The United 
States looks forward to reviewing the adequacy of these amendments, and 
will consider the next steps in this dispute accordingly.
    Copyrights: The EU's legislative framework for copyright protection 
consists of a series of Directives covering areas such as the legal 
protection of computer programs, the duration of protection of authors' 
rights and neighboring rights, and the legal protection of databases. 
In May 2001, the EU adopted a Directive covering copyright in the 
digital economy. It guarantees authors' exclusive reproduction rights 
with a single mandatory exception for cache, or temporary, copies, and 
an exhaustive list of other exceptions which individual member states 
can select and include in national legislation. This list is meant to 
reflect different cultural and legal traditions, and includes private 
copying ``on condition right holders receive fair compensation.'' EU 
member states have until the end of 2002 to implement the new rules.
8. Worker Rights
    Labor legislation still remains largely the domain of individual 
member states. Decisions taken at the Lisbon, Luxembourg, Cardiff, and 
Cologne EU Summit Meetings of the EU have, however, significantly 
increased cooperation and coordination on employment issues. 
Specifically, the Luxembourg Process created a system of goals on 
employment and annual reviews of each country's progress toward meeting 
them. The Cardiff Process sought to liberalize further the movements of 
goods, services, and capital as a means of increasing employment in EU 
countries. And the Cologne Process, in the European Employment Strategy 
signed at the Summit, brought the EU's coordination in employment and 
macroeconomic policies closer together. The Lisbon Summit set a goal to 
raise the EU's employment rate from 60 percent to 70 percent by 2010. 
It also stressed the need for appropriate lifelong learning and 
training to meet the needs of a growing information society. The EU is 
also beginning to address the problems of the population bulge, 
pensions, and health care for the elderly through informal coordination 
mechanisms.
    In July 2001, the European Commission put forward a communication 
setting out a proposed EU strategy to promote core labor standards in 
the context of globalization. The Commission proposes, among other 
things, to make existing ILO (International Labor Organization) 
instruments more effective and to continue efforts to launch a regular 
international dialogue on trade and labor. The proposed labor standards 
strategy is subject to European Parliament and Council review before 
final adoption.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  26,051
Total Manufacturing.........  ...........  168,648
  Food & Kindred Products...  15,594       .............................
  Chemicals & Allied          52,605       .............................
   Products.
  Primary & Fabricated        9,385        .............................
   Metals.
  Industrial Machinery and    23,141       .............................
   Equipment.
  Electric & Electronic       17,490       .............................
   Equipment.
  Transportation Equipment..  15,497       .............................
  Other Manufacturing.......  34,936       .............................
Wholesale Trade.............  ...........  34,365
Banking.....................  ...........  18,083
Finance/Insurance/Real        ...........  239,523
 Estate.
Services....................  ...........  47,243
Other Industries............  ...........  39,504
    Total All Industries....  ...........  573,416
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                AUSTRIA


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                    1999          2000        \1\ 2001
------------------------------------------------------------------------
Income, Production and
 Employment:
  Nominal GDP.................    210,069.7     189,899.5   \2\ 190,353.
                                                                      2
  Real GDP Growth (pct).......          2.8           3.3           1.3
  GDP by Sector:
    Agriculture...............      4,175.1       3,496.3           N/A
    Manufacturing.............     61,525.9      56,269.3           N/A
    Services..................    117,257.9     103,222.4           N/A
    Government................     13,028.7      11,486.9           N/A
  Per Capita GDP (US$)........       25,960        23,416    \2\ 23,360
  Labor Force (000s)..........        3,701         3,701         3,721
  Unemployment Rate (pct).....          4.0           3.7           3.8
 
Money and Prices (annual
 percentage growth):
  Money Supply Growth (M2)....          4.6           2.8           N/A
  Consumer Price Inflation....          0.6           2.3           2.6
  Exchange Rate (Euro/US$--           12.91         14.93         15.29
   annual average) Official...
 
Balance of Payments and Trade:
  Total Exports FOB...........     64,235.2      64,232,2   \2\ 67,310.0
    Exports to United States..      2,931.5       3,223.9       3,400.0
  Total Imports CIF...........     69,617.4      69,064.3   \2\ 72,730.0
    Imports from United States      3,719.9       3,785.9       4,000.0
  Trade Balance...............     -5,382.2      -4,832,1      -5,420.0
    Balance with United States       -788.4        -562.0        -600.0
  External Public Debt \3\....     17,925.7      15,447.0      12,206.1
  Fiscal Deficit/GDP (pct)....          2.2           1.1           0.7
  Current Account Deficit/GDP           3.2           2.8           2.6
   (pct)......................
  Debt Service Payments/GDP             0.7           1.4           1.4
   (pct) \4\..................
  Gold and Foreign Exchange        20,193.6      17,394.5           N/A
   Reserves (Year-End) \5\....
  Aid from United States......            0             0             0
  Aid from All Other Sources..            0             0             0
------------------------------------------------------------------------
\1\ 2001 figures are all estimates based on latest available data and
  economic forecasts in October 2001.
\2\ The apparent decline in 2000 and/or 2001 figures is a result of
  exchange rate fluctuations between the euro and the U.S. dollar. In
  local euro currency, figures show an increase in 2000 and/or 2001.
\3\ Since the start of the Economic and Monetary Union (EMU) on January
  1,1999, external debt is defined as debt denominated in other
  currencies than the euro.
\4\ Debt service payments on external public debt.
\5\ Since the start of the EMU, the Austrian National Bank's foreign
  exchange reserves are part of the Eurosystem. The apparent decline in
  the 2000 figure is a result of exchange rate fluctuations between the
  euro and the U.S. dollar. In euro currency, figures were stable.
 
Sources: Austrian Institute for Economic Research (WIFO), Austrian
  Central Statistical Office, Austrian Federal Finance Ministry,
  Austrian National Bank, and Federal Debt Committee.


1. General Policy Framework
    Based on per capita GDP, Austria is the fifth richest EU country. 
Austria has a skilled labor force and a record of excellent industrial 
relations. Its economy is dominated by services, accounting for 70 
percent of employment, followed by manufacturing. Small and medium-
sized companies are predominant. After previous governments had 
privatized most of the formerly state-owned manufacturing industries, 
the Conservative (OVP)-Freedom Party (FPO) government that took office 
in 2000, decided to go ahead with further privatization, including in 
the banking, telecommunications and energy sectors. It was also 
considering full privatization of partly privatized companies, 
including Austrian Airlines and OMV petroleum company; but more 
recently has put these projects on hold due to changed economic 
conditions.
    Exports of Austrian goods and services account for more than 45 
percent of GDP. Austria's major goods export market is the EU, 
accounting for 66 percent of Austrian exports, with 41 percent to 
Germany and 7 percent to Italy, compared to 5 percent to the United 
States. However, given Austria's traditional expertise in Central and 
Eastern European (CEE) markets, exports to that region have soared 
since 1989, accounting for 13 percent of Austrian exports in 2000. 
Numerous multinationals have established their regional headquarters in 
Austria as a ``launching pad'' to the CEE markets.
    The government has been less bound than its predecessors by the 
Austrian tradition of setting economic policy in consultation with the 
so-called ``Social Partners,'' consisting of the representative bodies 
of business, farmers, and labor. Designed to minimize social unrest, 
this consensual approach has come under criticism for slowing the pace 
of economic reforms. The government broke precedent by not consulting 
with the social partner institutions on important economic policy 
decisions such as social benefits reform and balancing the budget.
    As a member of the EU's Economic and Monetary Union (EMU), Austria 
is required to keep its budget deficit in line with the EU's Stability 
and Growth Pact. The budget consolidation process is hard, however, as 
the federal deficit had to come down from 2.5 percent of GDP in 1999. 
Strong economic growth and swift implementation of tax increases and 
pension reform helped the new government to limit the federal deficit 
to 1.4 percent of GDP in 2000 and the consolidated public sector 
deficit to 1.1 percent of GDP. The government intends to further reduce 
the federal deficit to 1.1 percent in 2001 and to 0.7 percent by 2002, 
and to balance the consolidated public sector budget by 2002. Reduced 
economic growth prospects, increased spending on family allowances and 
halting public service reform, however, make the target more difficult 
to hit.
    Other foci of economic policy are introducing the single euro 
currency, reforming the social and pension systems, implementing an 
ambitious privatization program, and creating a more competitive 
business environment. Although Austria's economy has become 
considerably more liberal and open, foreign investors as well as local 
businesses must still cope with rigidities, barriers to market entry, 
and an elaborate regulatory environment in some sectors.
2. Exchange Rate Policies
    As one of the twelve EU member states participating in EMU, Austria 
on January 1, 1999, surrendered its sovereign power to formulate 
monetary policy to the European Central Bank (ECB). The government 
successfully met all EMU convergence criteria due to austerity measures 
implemented in 1996-97, and is pursuing a policy of further reducing 
the fiscal deficit and the public debt. The government's goal is to 
balance the consolidated public sector budget by 2002, offsetting the 
slight federal deficit with a regional and local government surplus. 
The Austrian National Bank (ANB) is a member of the European System of 
Central Banks (ESCB) and supports the ECB's focus on maintaining price 
stability in formulating exchange rate and monetary policies. On 
December 31, 1998, the exchange rate for the euro was fixed at Austrian 
schillings (AS) 13.7603.
    In 2000, the euro, and with it the Austrian schilling, lost 
considerable ground against the dollar. In 2001, the dollar continued 
to rise further against the schilling parallel to its rise against the 
single euro currency.
3. Structural Policies
    Austria's 1995 accession to the EU forced the government to 
accelerate structural reforms and open the economy, removing many 
nontariff barriers to merchandise trade and fully liberalizing cross-
border capital movements.
    While the government continues to be a major player in the economy, 
government spending (federal, provincial and local governments plus 
social security, but excluding parastatals) fell to 52.4% of GDP in 
2000 from 57.4% in 1995. (Note: the figure for the government 
contribution to GDP, as shown in the table, reflects only narrow public 
administration functions and does not include social and other 
expenditures.) The government's plans for a balanced total public 
sector budget and privatization should reduce this share further. In 
May 2000, Parliament passed a law establishing a legal framework for 
privatization of remaining government shareholdings. Meanwhile, the 
government has sold all its shares in the Postal Savings Bank, Vienna 
airport company, Austria tobacco company, and Dorotheum auction house 
and bank, and a majority in Telekom Austria. The government will also 
review full privatization of its shareholdings in already partly 
privatized companies, including Austrian Airlines, OMV petroleum 
company and Voest-Alpine steel. A stated policy of ``maintaining the 
Austrian interest'' in banks and basic industries has so far not had 
any real effect. Foreign investors have been successful in obtaining 
shares in important Austrian industry sectors, for example the banking, 
telecom and energy sectors.
    As a result of EU liberalization directives, the government has 
also moved ahead with liberalization legislation in the telecom and 
energy sectors. The opening of the market for conventional telephones 
on January 1, 1998, represented the final phase of Austria's telecom 
liberalization. The Austrian telecom services sector is now open to 
competition, but more so in mobile than in fixed-line telephony, 
including Internet service. The government also moved ahead with the 
liberalization of the highly centralized and virtually closed 
electricity market. All customers are allowed to choose their 
electricity supplier as of October 2001. However, federal, state, and 
local governments maintain control of the electricity distribution 
grid. The federal government is likely to keep its 51 percent majority 
in the federal power company ``Verbund'' because selling these shares 
requires a two-thirds majority in Parliament. Preparations are also 
under way to liberalize the natural gas market in 2002.
    In past years, the government has cut red tape to make Austria more 
attractive for investors. Procedures for investors to obtain necessary 
permits and other approvals have been streamlined and the time for 
approvals cut considerably. However, approval for larger projects can 
still be burdensome and lengthy. The government's plans for 
implementing ``one-stop-shopping'' for all necessary permits, even 
online, have not yet made much progress, in part due to jurisdictional 
problems. Other measures planned to improve the business climate and 
stimulate entrepreneurial activity include the reduction of non-wage 
costs for labor, strengthening the equity market for small- and medium-
sized enterprises, reducing the number of laws and regulations for 
business, drafting a new company law, reforming the Business Code to 
liberalize establishing new businesses, allowing more flexible work 
hours, and more liberal shopping hours. So far, progress in all these 
areas is limited.
4. Debt Management Policies
    Austria's external debt management has had no significant impact on 
U.S. trade. At the end of 2000, the Austrian federal government's 
external debt amounted to $15.4 billion, 14 percent of the government's 
overall debt, and consisted of 93 percent bonds and 7 percent credits 
and loans. Debt service on the federal government's external debt 
amounted to $2.6 billion in 2000, or 1.4 percent of GDP and 2.8 percent 
of total exports of goods and services. The total public sector 
external debt in 2000 was not significantly higher than the federal 
government's external debt. Total gross public debt was 62.9 percent of 
GDP at the end of 2000 and, thus, still above the 60 percent ceiling 
set under the Maastricht convergence criteria. Republic of Austria 
bonds are rated AAA by recognized international credit rating agencies.
5. Significant Barriers to U.S. Exports
    The United States is Austria's largest non-European trading 
partner, contributing 5.5 percent of Austria's total 2000 imports. The 
United States was Austria's third largest supplier worldwide after 
Germany and Italy. The Austrian government thus has a clear interest in 
maintaining close and smooth trade ties. However, there are a number of 
obstacles hindering further increases of U.S. exports to Austria. A 
GATT member since 1951, Austria is a signatory to the successor WTO.
    Import License Requirements: The EU, and therefore Austria, 
requires import licenses for a number of products, first and foremost 
for agricultural and health products on health grounds. In general, an 
Austrian importer must possess an export license from the supplier 
country and then obtain permission to import from the Austrian 
authorities.
    Separate from the issue of licensing is the issue of approval of 
pharmaceuticals for reimbursement under Austrian health insurance 
regulations. The Austrian social insurance association, ``Hauptverband 
der Sozialversicherungstraeger,'' decides which products are approved 
for reimbursement by health insurance plans. Pharmaceuticals not 
approved by the Hauptverband have higher out-of-pocket costs for 
patients. Therefore U.S. innovative pharmaceutical companies have 
complained that difficulty placing products on the list of reimbursable 
products amounts to a market access restriction. The United States and 
Austria are discussing this issue under Informal Commercial Exchange 
(ICE) talks.
    Various agricultural products are banned from the Austrian market 
for the same reasons. The EU ban on beef imports from cattle treated 
with hormones severely restricts U.S. exports of beef to Austria. 
Despite a WTO decision that the ban is inconsistent with the rules of 
international trade, the EU has not lifted the ban. The Austrian 
government, moreover, has ruled out a lifting of the ban in the near 
future. Further, the EU has not approved any U.S. poultry plants, 
ruling out the possibility of importing U.S. poultry, or products 
containing poultry. Finally, the EU has not approved most genetically 
modified plants available in the United States; imports of these plants 
or products containing these plants are not permitted. Austria has gone 
even further than its EU partners: Novartis corn and Monsanto BT corn, 
approved by the European Commission, are not permitted in Austria. The 
Austrian government went well beyond EU requirements in ordering corn 
to be plowed under in 2001 when it was found to contain adventitious 
trace amounts of EU-approved GMO varieties. A more detailed discussion 
of these and other EU-wide barriers can be found in the country report 
for the European Union.
    Service Barriers: Providers of financial services such as insurance 
and banking have to meet reciprocity requirements, and at least one 
manager of each branch or subsidiary must have residence in Austria. 
Providers of legal services must submit specific proof of their 
qualifications, such as university education or number of years of 
practice. Potential health and social services providers are subject to 
an economic test and must obtain a business permit from the local 
governments. Travel agencies and tour operators require a proof of 
qualification and must be listed with the Austrian Ministry of 
Economics. Under the WTO General Agreement on Trade in Services, 
Austrian officials insist that Austria's commitments on trade in 
professional services extend only to intra-corporate transfers. U.S. 
service companies often form joint ventures with Austrian firms to 
circumvent these restrictions.
    Several competitors now offer fixed-line telephone service over 
Telekom Austria lines, which, however, still dominates fixed-line 
service over the ``last mile.'' The telecommunications' control 
authority issued an order for unbundling of the local loop in September 
2000. Competitors are supposed to negotiate with the incumbent Telekom 
Austria regarding conditions of local loop access, and will have 
recourse to the telecoms' control authority if they cannot reach 
agreement with the dominant carrier. ``Third generation'' mobile 
telephony licenses were issued in December 2000.
    Labeling requirements: Information is required for most, and all 
wrapped, foodstuffs identifying the composition of the product, the 
manufacturer, methods of storage and preparation, and the quantity. 
Other important requirements include washing instructions on textiles, 
and certification of safety (the CE mark) on machines, toys, and baby 
accessories.
    Investment barriers: Austria is in compliance with WTO Trade 
Related Investment Measures (TRIMS) agreement notification. There are 
limited restrictions on foreign investment in Austria with regard to 
sectors. However, at least one manager must meet residency and other 
legal qualifications. Non-residents must appoint a representative in 
Austria. Although not required in order to gain access to tax 
incentives, performance requirements may be imposed when foreign 
investors seek financial or other assistance from the Austrian 
government. The Residence Law and the Foreign Workers Employment Law 
exempt skilled U.S. labor (e.g., managers and their dependents) from an 
increasingly restrictive quota system for residence permits.
    Foreign and domestic private enterprises are free to establish, 
acquire, and dispose of interests in business enterprises, with the 
exception of railroads, some utilities, and state monopolies. As the 
government continues to pursue privatization, some of these industries 
are gradually being opened up to private investment as well. In July 
2001, a law on terrestrial private television was adopted that allows 
foreign investments in this area for the first time.
    The Austrian electricity market was fully liberalized for consumers 
and foreign investors in October 2001, but the majority shares of the 
Austrian suppliers remain in the hands of various levels of government. 
In October 2002, the gas market will be completely opened up as well. 
Overall costs in Austria are similar to those in France and Italy, 
lower than in Germany and Japan, but higher than in the United States, 
Canada, and the U.K.
    Government Procurement: Austria is a party to the WTO Government 
Procurement Agreement. Austria's Federal Procurement Law was amended in 
January 1997 to bring its procurement legislation in line with EU 
guidelines, particularly on services. In defense contracts, offset 
agreements are common practice. U.S. firms have reported experiencing a 
strong pro-EU bias in government contract awards, and a similar pro-EU 
bias (in some instances an even more narrow call for ``Austrian 
solutions'') has also appeared to play a role in some privatization 
decisions. In a recent procurement case, however, the U.S. firm 
Sikorsky was able to secure a major contract for ``Blackhawk'' 
helicopters over European competitors, in a hard-fought competition in 
which offsets were a major factor.
    Customs Procedures: There are no particularly burdensome 
procedures. However, in compliance with the EU Generalized System of 
Preferences, a customs declaration must be made in order to bring goods 
from a third country to Austria. Depending on the product and the 
country of origin, specific evidence must be included.
6. Export Subsidies Policies
    The government provides export promotion loans and guarantees 
within the framework of the OECD export credit arrangement and the WTO 
Agreement on Subsidies and Countervailing Measures. Some export 
promotions, however, fall under the category ``development aid.'' The 
Austrian Kontrollbank (AKB), Austria's export financing agency, 
administers the government's export guarantees. Credits under the AKB's 
export financing scheme are provided in conformity with the rules of 
the OECD Arrangement on Guidelines for Officially Supported Export 
Credits (``Consensus''). The AKB publishes conditions and eligible 
country lists, but they are far from transparent. The Finance Ministry 
hired a private consultancy firm to review whether comprehensiveness 
and a proper risk analysis are guaranteed in connection with the AKB's 
assumptions of liabilities.
7. Protection of U.S. Intellectual Property
    The legal system protects registered interests in intellectual 
property rights, including patents, trademarks, and copyrights. Austria 
is a party to the World Intellectual Property Organization and several 
international intellectual property conventions, such as the European 
Patent Convention, the Paris Industrial Property Convention, the Madrid 
Trademark Agreement, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms for the Purpose of Patent 
Procedure, the Universal Copyright Convention, the Brussels Convention 
Relating to the Distribution of Program-carrying Signals transmitted by 
Satellite, and the Geneva Treaty on the International Registration of 
Audiovisual Works. In the World Trade Organization Treaty on 
Intellectual Property (WTO TRIPS) negotiations, Austria prefers the 
``first-to-file'' and not the U.S.-favored ``first-to-invent'' 
principle. Further, initiatives should be encouraged to promote trade 
of property protected by copyright, according to Austrian negotiators.
    Patents: In compliance with the WTO TRIPS agreement obligations, 
Austria extended patent terms on inventions to 20 years after 
application. However, the Parliament has delayed the decision on a 
patent law amendment that would have implemented the 1998 EU guideline 
on the protection of biotechnological inventions. This amendment would 
strengthen regulations on patent offences and compensation, and the 
obligations to give information.
    Copyrights: The copyright law grants the author the exclusive right 
to publish, distribute, copy, adapt, translate, and broadcast his work. 
Infringement proceedings, however, can be time consuming and 
complicated. In 2001, Austria, in line with EU requirements, 
implemented a law against product piracy to prevent trade in 
counterfeit goods. A special problem under Austrian copyright law is 
that ``tourist establishments'' (hotels, inns, bed and breakfast 
establishments, etc.) may show cinematographic works or other 
audiovisual works, including videos, to their guests without prior 
authorization from the copyright holder. The United States holds this 
provision to be inconsistent with Austria's obligations under the Berne 
Convention and TRIPS. Austrian copyright law also requires that a 
license fee be paid on imports of home video and DVD cassettes and 
broadcasting transmissions. Of these fees, 51 percent are paid into a 
fund dedicated to social and cultural projects. In the view of the 
United States, the copyright owners should receive the revenues 
generated from these fees and any deductions for cultural purposes 
should be held to a minimum.
    New Technologies: Due to the alleged possibility of patenting 
genes, plants and animals, Austria is reluctant to implement the EU 
directive 98/44/EG on the protection of biotechnological inventions. 
The delay may infringe U.S. investments. Content piracy on the Internet 
is another growing problem although the copyright law is fully 
applicable in this regard. However, the Austrian courts are hesitant to 
enforce the law against the pirates.
    U.S. investors are entitled to the same kind of protection under 
Austrian patent and copyright legislation as are Austrian nationals. 
Intellectual property problems do not specifically affect U.S. trade. 
Austria was not mentioned in the U.S. government's ``Special 301'' 
review in 2000.
8. Worker Rights
    a. The Right of Association: Workers have the constitutional right 
to form and join unions without prior authorization. All 12 sectoral 
unions belong to the Austrian Trade Union Federation (OGB), which has a 
highly centralized leadership structure that does, de facto, not allow 
other unions to thrive. Although the right to strike is not provided 
explicitly in the Constitution, it is universally recognized. Labor 
participates in the ``social partnership,'' in which the leaders of 
Austria's labor, business, and agricultural institutions jointly try to 
influence legislation on social and economic issues. Under the current 
government their impact is decreasing.
    b. The Right to Organize and Bargain Collectively: Unions have the 
right to organize and bargain collectively. Almost all large companies, 
private or state-owned, are organized. Worker councils operate at the 
enterprise level, and workers are entitled by law to elect one-third of 
the members of supervisory boards of major companies. Collective 
agreements covering wages, benefits and working conditions are 
negotiated exclusively by the OGB with the National Economic Chamber 
and its associations, which represent the employers. All workers except 
civil servants are required to be members of the Austrian Chamber of 
Labor, a public body that is enabled to act for workers' rights along 
with the OGB.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law, and this prohibition is enforced 
effectively. Trafficking in women for the purpose of forced 
prostitution, however, remains a problem.
    d. Minimum Age for Employment of Children: The minimum legal 
working age is 15. The law is enforced effectively.
    e. Acceptable Conditions of Work: There is no legally mandated 
minimum wage. Instead, nationwide collective bargaining agreements set 
minimums by job classification for each industry. Workers as well as 
the jobless are entitled to a variety of generous social benefits that 
guarantee a high standard of living on average. Over half of the 
workforce works a maximum of either 38 or 38.5 hours per week, although 
the legal workweek has been established at 40 hours. The Labor 
Inspectorate ensures the effective protection of workers by requiring 
companies to meet Austria's extensive occupational health and safety 
standards. Slight differences between blue collar and white collar 
workers with regard to health care were further reduced in 2000.
    f. Rights in Sectors with U.S. Investment: Labor laws tend to be 
consistently enforced in all sectors, including the automotive sector, 
in which the majority of U.S. capital is invested.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  (\1\)
Total Manufacturing.........  ...........  1,114
  Food & Kindred Products...  39           .............................
  Chemicals & Allied          73           .............................
   Products.
  Primary & Fabricated        (\1\)        .............................
   Metals.
  Industrial Machinery and    131          .............................
   Equipment.
  Electric & Electronic       403          .............................
   Equipment.
  Transportation Equipment..  228          .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  592
Banking.....................  ...........  1,601
Finance/Insurance/Real        ...........  126
 Estate.
Services....................  ...........  164
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  3,676
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                BELGIUM


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (at current prices) \2\..       222        230      230.3
  Real GDP Growth (pct) \3\............       1.5        2.8        2.0
  GDP by Sector (pct):
    Agriculture........................       1.2        N/A        N/A
    Construction.......................       6.2        N/A        N/A
    Energy.............................       4.4        N/A        N/A
    Manufacturing......................      17.8        N/A        N/A
    Government.........................       N/A        N/A        N/A
    Services...........................      52.6        N/A        N/A
    Nontradable Services...............      17.7        N/A        N/A
  Real Per Capita GDP (US$) \4\........    24,598     22,519     22,578
  Labor Force (000s)...................     4,514      4,558      4,596
  Unemployment Rate (pct)..............       8.8        7.0        7.0
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............       5.5        5.5        N/A
  Consumer Price Inflation.............       1.1        2.7        2.2
  Exchange Rate (BF/US$--annual             37.48      43.66       45.5
   average)............................
 
Balance of Payments and Trade:
  Total Exports FOB \5\................     179.2      186.1      204.5
    Exports to United States \6\.......       8.2        9.0        9.0
  Total Imports CIF \5\................     164.9      173.0      194.2
    Imports from United States \6\.....      12.3       13.9       12.5
  Trade Balance \5\....................      14.3       13.1       10.3
    Balance with United States \6\.....       4.1        4.9       -3.5
  Current Account/GDP (pct)............       4.1        4.5        5.5
  External Public Debt.................      11.2        7.5        N/A
  Fiscal Deficit/GDP (pct).............      -0.9       -0.5        0.2
  Debt Service Payments/GDP............       N/A        N/A        N/A
  Aid from United States...............         0          0          0
  Aid for All Other Sources............         0          0          0
------------------------------------------------------------------------
\1\ 2001 figures are all estimates based on monthly data available in
  October 2001.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ At 1985 prices.
\5\ Merchandise trade. Government of Belgium data.
\6\ FAS.
 
Source: U.S. Department of Commerce and U.S. Census Bureau.


1. General Policy Framework
            Major Trends and Outlook
    Belgium possesses a highly developed market economy, the tenth 
largest among the OECD industrialized democracies. The service sector 
generates more than 70 percent of GDP, industry 25 percent, and 
agriculture 2 percent. Belgium ranked as the twelfth-largest trading 
country in the world in 2000, with exports and imports each equivalent 
to about 75 percent of GDP. More than eighty percent of Belgium's trade 
is with other European Union (EU) members. Eight percent is with the 
United States. Belgium imports many basic or intermediate goods, adds 
value, and then exports final products. The country derives trade 
advantages from its central geographic location, and a highly skilled, 
multilingual, and industrious workforce. Over the past 30 years, 
Belgium has enjoyed the second-highest average annual growth in 
productivity among OECD countries (after Japan).
    Throughout the late 1970s and the 1980s, Belgium ran chronic budget 
deficits, leading to a rapid accumulation of public sector debt. By 
1994, debt was equal to 137 percent of GDP. Since then, however, the 
country has made substantial progress in reducing the debt and 
balancing its budget. Belgium has largely financed its budget deficits 
from domestic savings. Foreign debt represents less than eight percent 
of the total and Belgium is a net creditor on its external account.
    Belgium's macroeconomic policy since 1992 has aimed at reducing the 
deficit below three percent of GDP and reversing the growth of the 
debt/GDP ratio in order to meet the criteria for participation in 
Economic and Monetary Union (EMU) set out in the EU's Maastricht 
Treaty. On May 1, 1998, Belgium became a first-tier member of the 
European Monetary Union. The government's 2002 budget is projected to 
be balanced and continues the debt reduction policies with the aim of 
achieving a debt/GDP ratio making substantial progress towards the 60 
percent of GDP Maastricht benchmark (from 106.8 percent of GDP in 2001 
to 103.7 percent in 2002).
    Economic growth this year is mainly created through domestic 
demand, driven by higher consumer and producer confidence. Wage costs 
seem to be under control, but unemployment is expected to go up again 
after reaching a 10-year low in the middle of 2001. However, the seven 
percent is an average figure which glosses over significant 
differences, both between demand and supply as well as between regions.
    Belgium's unemployment situation improved slowly last year. 
Standardized EU data put Belgium's unemployment rate at seven percent 
in June 2001, slightly below the EU's average. For 2002, unemployment 
is expected to go up again. However, strong regional differences in 
unemployment rates persist, with rates in Wallonia and Brussels being 
two to three times higher than in Flanders. Although wage growth has 
been very modest since 1994, wage levels remain among the highest in 
Europe.
    In 1993, Belgium completed its process of regionalization and 
became a federal state consisting of three regions: Brussels, Flanders, 
and Wallonia. Each region was given substantial economic powers, 
including trade promotion, investment, industrial development, 
research, and environmental regulation.
            Principal Growth Sectors
    Sectoral growth in the Belgian economy reflects macroeconomic 
trends. Industry sectors that are oriented towards foreign markets, in 
particular those in the semi-finished goods sector such as iron and 
steel, non-ferrous metals and chemicals are very sensitive to foreign 
business cycle developments. Business investment is expected to slow 
down considerably in 2001 and 2002, as over-investments and risk-
aversion put limits on the recovery (and hence profits) of the 
corporate sector. Sectors that are expected to perform relatively well 
in this downturn of the business cycle are energy, pharmaceuticals, and 
distribution.
            Government Role in the Economy
    Since 1993, the Belgian government has privatized BF 280 billion 
worth of public sector entities. In 2000, the government did not raise 
any further money through privatization, although it is now actively 
pursuing public private partnerships (PPPs). Further privatization of 
the last two enterprises with a strong public sector stake, Sabena (if 
it emerges from its current bankruptcy) and Belgacom, will probably 
occur before the end of this coalition's term, i.e. 2003.
            Balance of Payments Situation
    Belgium's current account surplus stagnated in 2000: at 4.1 percent 
of GDP, it was well above the EU average of 1.5 percent of GDP, and one 
of the largest in the OECD area. However, during the first half of 
2001, the surplus was reduced from euro 3.23 billion one year ago to 
euro 2.4 billion. This decline can be largely attributed to a slowdown 
in exports due to the deteriorating international business cycle. 
Imports were relatively stable in this period because of sustained 
consumer confidence and exchange-rate movements. Another cause of the 
decline were the reduced incomes from Belgian foreign investments, 
mainly in the U.S. capital markets.
            Infrastructure Situation
    Belgium has an excellent transportation network of ports, railroads 
and highways, including Europe's second-largest port, Antwerp. Major 
U.S. cargo carriers have created at Brussels-Zaventem airport one of 
the first European hub-and-spoke operations.
2. Exchange Rate Policy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
3. Structural Policies
    Belgium is a very open economy, as witnessed by its high levels of 
exports and imports relative to GDP. Belgium generally discourages 
protectionism. The federal and some regional governments actively 
encourage foreign investment on a national treatment basis.
    Tax policies: The top marginal rate on wage and salary income is 55 
percent. Corporations (including foreign-owned corporations) pay a 
standard income tax rate of 33 plus a three percent so-called crisis 
tax. This is a reduction from the previous 41 percent rate. Small 
companies pay a rate ranging from 29 to 37 percent. Branches and 
foreign offices pay income tax at a rate of 43 percent, or at a lower 
rate in accordance with the provisions contained in a double taxation 
treaty. Under the present bilateral treaty between Belgium and the 
United States, that rate is 36 percent.
    Despite the reforms of the past years, the Belgian tax system is 
still characterized by relatively high rates and a fairly narrow base 
resulting from numerous exemptions. While indirect taxes as a share of 
total government revenues are lower than the EU average, personal 
income taxation and social security contributions are particularly 
heavy. In 2000, the federal government announced several measures aimed 
at gradually reducing the personal income taxes. However, the impact of 
these will only be measurable before the next general elections in 
2003. Total taxes as a percent of GDP are the third highest among OECD 
countries. Moreover, pharmaceutical manufacturers are saddled with a 
unique turnover tax of six percent. Taxes on income from capital are by 
comparison quite low; since October 1995, the tax rate on interest 
income is 15 percent, and the tax rate on dividends is 25 percent for 
residents. There is no tax on capital gains.
    Belgium has instituted special corporate tax regimes for 
coordination centers, distribution centers, and business service 
centers (including call centers) in recent years in order to attract 
foreign investment. These tax regimes provide for a ``cost-plus'' 
definition of income for intragroup activities and have proven very 
attractive to U.S. firms, but are now being targeted by the European 
Commission as constituting unfair competition with other EU member 
states.
    Regulatory policies: The only areas where price controls are 
effectively in place are energy, household leases, and pharmaceuticals. 
Only in pharmaceuticals does this regime have a serious impact on U.S. 
business in Belgium. American pharmaceutical companies present in 
Belgium have repeatedly expressed their serious concerns about delays 
in product approvals and pricing, as well as social security 
reimbursement. Discussions on this subject between industry 
representatives and the Belgian government may lead to tangible 
improvements.
4. Debt Management Policies
    Belgium is a member of the G-10 group of leading financial nations, 
and participates actively in the IMF, the World Bank, the EBRD and the 
Paris Club. Belgium is also a significant donor of development 
assistance. It closely follows development and debt issues, 
particularly in central Africa and some other African nations.
    Belgium is a net external creditor, thanks to the household 
sector's foreign assets, which exceed the external debts of the public 
and corporate sectors. Only about eight percent of the Belgian 
government's overall debt is owed to foreign creditors. Moody's top Aa1 
rating for the country's bond issues in foreign currency reflects 
Belgium's integrated position in the EU, its significant improvements 
in fiscal and external balances over the past few years, its economic 
union with the financial powerhouse Luxembourg, and the reduction of 
its foreign currency debt. The Belgian government has no problems 
obtaining new loans on the local credit market.
5. Significant Barriers to U.S. Exports
    From the inception of the EU's single market, Belgium has 
implemented most, but not all, trade and investment rules necessary to 
harmonize with the rules of the other EU member countries. Thus, the 
potential for U.S. exporters to take advantage of the vastly expanded 
EU market through investments or sales in Belgium has grown 
significantly. However, some barriers to services and commodity trade 
still exist.
    Telecommunications: Although Belgium fully liberalized its 
telecommunications services in accordance with the EU directive on 
January 1, 1998, some barriers to entry still persist. New entrants to 
the Belgian market complain that the interconnect charges they pay to 
Belgacom (the former monopolist, 51 percent government-owned) remain 
high and that BIPT, the Belgian telecoms regulator, is not truly 
independent. Further privatization of Belgacom may enhance the 
increasingly competitive environment and lend more independence to the 
regulator.
    Ecotaxes: The Belgian government has adopted a series of ecotaxes 
in order to redirect consumer buying patterns towards materials seen as 
environmentally less damaging. These taxes may raise costs for some 
U.S. exporters, since U.S. companies selling into the Belgian market 
must adapt worldwide products to various EU member states' 
environmental standards.
    Retail Service Sector: Some U.S. retailers, including Toys'R' Us 
and McDonalds, have experienced considerable difficulties in obtaining 
permits for outlets in Belgium. Current zoning legislation is designed 
to protect small shopkeepers, and its application is not transparent. 
Belgian retailers suffer from the same restrictions, but their existing 
sites give them strong market share and power in local markets.
    Pharmaceutical Pricing: Pharmaceutical products are under strict 
price controls in Belgium. Furthermore, since 1993, procedures to 
approve new life-saving medicines for reimbursement by the national 
health care system have slowed down steadily, to an average of 410 
days, according to the local manufacturers group of pharmaceutical 
companies. The EU's legal maximum for issuance of such approvals 
remains 180 days. A six percent turnover tax is charged on all sales of 
pharmaceutical products. There is a price freeze on reimbursable 
products and a required price reduction on drugs on the market for 15 
years. Discussions on this subject have been going on between industry 
representatives, the U.S. Embassy and the Belgian government for 
several years.
    Public Procurement: In January 1996, the Belgian government 
implemented a new law on government procurement to bring Belgian 
legislation into conformity with EU directives. The revision has 
incorporated some of the onerous provisions of EU legislation, while 
improving certain aspects of government procurement at the various 
governmental levels in Belgium. Belgian public procurement still 
manifests instances of poor public notification and procedural 
enforcement, requirements for offsets in military procurement and 
nontransparency in all stages of the procurement process.
    Within the European Union, the European Commission has authority 
for developing most aspects of EU-wide external trade policy, and most 
trade barriers faced by U.S. exporters in EU member states are the 
result of common EU policies. Such trade barriers include: the import, 
sale and distribution of bananas; restrictions on wine exports; local 
(EU) content requirements in the audiovisual sector; standards and 
certification requirements (including those related to aircraft and 
consumer products); product approvals and other restrictions on 
agricultural biotechnology products; sanitary and phytosanitary 
restrictions (including a ban on import of hormone-treated beef); 
export subsidies in the aerospace and shipbuilding industries; and 
trade preferences granted by the EU to various third countries. A more 
detailed discussion of these and other barriers can be found in the 
country report for the European Union.
6. Export Subsidies Policies
    There are no direct export subsidies offered by the Belgian 
government to industrial and commercial entities in the country, but 
the government (both at the federal and the regional level) does 
conduct an active program of trade promotion, including subsidies for 
participation in foreign trade fairs and the compilation of market 
research reports. All of these programs are offered to both domestic 
and foreign-owned exporters. Also, the United States has raised with 
the Belgian government and the EU Commission concerns over subsidies to 
Belgian firms producing components for Airbus.
7. Protection of U.S. Intellectual Property
    Belgium is party to the major intellectual property agreements, 
including the Paris, Berne and Universal Copyright Conventions, and the 
Patent Cooperation Treaty. Nevertheless, according to industry sources, 
an estimated 20 percent of Belgium's video cassette and compact disc 
markets are composed of pirated products, causing a $200 million loss 
to the producers. For software, the share of pirated copies has dropped 
from 36 to 33 percent in one year, still representing a loss of $520 
million to the industry.
    Copyright: On June 30, 1994, the Belgian Senate gave its final 
approval to the revised Belgian copyright law. National treatment 
standards were introduced in the blank tape levy provisions of the new 
law. Problems regarding first fixation and nonassignability were also 
solved. The final law states that authors will receive national 
treatment, and allows for sufficient maneuverability in neighboring 
rights. However, if Belgian right holders benefit from less generous 
protection in a foreign country, the principle of reciprocity applies 
to the citizens of that country. This is the case for the United 
States, which does not grant protection of neighboring rights to 
Belgian artists and performers, nor to Belgian producers of records and 
movies. As a consequence, U.S. citizens in Belgium are subject to the 
same restrictions.
    Patents: The Community Patent Convention has only been ratified by 
Germany and Greece, and so a single European patent does not yet exist. 
In the meantime, the patent applicant can choose between a national and 
a multiple-country patent. A patent thus granted is valid in Belgium 
only when a copy of the grant is in one of Belgium's three national 
languages and is filed with the Belgian Office of Industrial Property. 
To obtain a national patent in Belgium, the inventor or his/her 
assignee must file a request with the Office of Industrial Property in 
the Ministry of Economic Affairs. Officially, the Belgian Patent Office 
cannot refuse to grant anyone a patent. Normal Belgian patents last for 
six years, and those who require a twenty year patent must request a 
``Novelty and Non-Obvious Search.'' Once granted, the patent is 
registered with the Register of Patents, again located in the Ministry 
of Economic Affairs. However, the validity of the Patent is not 
guaranteed. The Belgian courts have the power to nullify a patent if 
the court feels that the patent does not meet the Novelty and Non-
obvious specifications.
    Trademarks: The Benelux Convention on Trademarks established a 
joint process for the registration of trademarks for Belgium, 
Luxembourg and the Netherlands. Product trademarks are available from 
the Benelux Trademark Office in The Hague. This trademark protection is 
valid for ten years, renewable for successive ten-year periods. The 
Benelux Office of Designs and Models will grant registration of 
industrial designs for 50 years of protection. International deposit of 
industrial designs under the auspices of the World Intellectual 
Property Organization (WIPO) is also available.
8. Worker Rights
    a. The Right of Association: Under the Belgian constitution, 
workers have the right to associate freely. This includes freedom to 
organize and join unions of their own choosing. The government does not 
hamper such activities and Belgian workers in fact fully and freely 
exercise their right of association. About 63 percent of Belgian 
workers are members of labor unions. This number includes employed, 
unemployed, and workers on early pension. Unions are independent of the 
government, but have important links with major political parties. 
Unions have the right to strike and strikes by civil servants and 
workers in ``essential'' services are tolerated. Truckers, railway 
workers, air controllers, ground handling and Sabena personnel have 
conducted strikes in recent years without government intimidation. 
Despite government protests over wildcat strikes by air traffic 
controllers, no strikers were prosecuted. Also, Belgian unions are free 
to form or join federations or confederations and are free to affiliate 
with international labor bodies.
    b. The Right to organize and Bargain Collectively: The right to 
organize and bargain collectively is recognized, protected and 
exercised freely. Every other year, the Belgian business federation and 
unions negotiate a nationwide collective bargaining agreement covering 
2.4 million private-sector workers, which establishes the framework for 
negotiations at plants and branches. Public sector workers also 
negotiate collective bargaining agreements. Collective bargaining 
agreements apply equally to union and non-union members, and over 90 
percent of Belgian workers are covered by collective bargaining 
agreements. Under legislation in force, wage increases are limited to a 
nominal 6.4 percent for the 2000-2002 period. The law prohibits 
discrimination against organizers and members of unions, and protects 
against termination of contracts of members of workers' councils, 
members of health and safety committees, and shop stewards. Effective 
mechanisms such as the labor courts exist for adjudicating disputes 
between labor and management. There are no export processing zones.
    c. Prohibition of Forced and Compulsory Labor: Forced or compulsory 
labor is illegal and does not occur. Domestic workers and all other 
workers have the same rights as non-domestic workers. The government 
enforces laws against those who seek to employ undocumented foreign 
workers.
    d. Minimum Age for Employment of Children: The minimum age for 
employment of children is 15, but schooling is compulsory until the age 
of 18. Youth between the ages of 15 and 18 may participate in part-time 
work/part-time study programs and may work full-time during school 
vacations. The labor courts effectively monitor compliance with 
national laws and standards. There are no industries where any 
significant child labor exists.
    e. Acceptable Conditions of Work: The current monthly national 
minimum wage rate for workers over 21 is BF 47,265 ($1,074); 18-year-
olds can be paid 82 percent of the minimum, 19-year-olds 88 percent and 
20-year-olds 94 percent. The Ministry of Labor effectively enforces 
laws regarding minimum wages, overtime and worker safety. By law, the 
standard workweek cannot exceed 40 hours and must include at least one 
24-hour rest period. Comprehensive provisions for worker safety are 
mandated by law. Collective bargaining agreements can supplement these 
laws.
    f. Rights in Sectors with U.S. Investment: U.S. capital is invested 
in many sectors in Belgium. Worker rights in these sectors do not 
differ from those in other areas.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  -164
Total Manufacturing.........  ...........  7,346
  Food & Kindred Products...  1,018        .............................
  Chemicals & Allied          4,558        .............................
   Products.
  Primary & Fabricated        143          .............................
   Metals.
  Industrial Machinery and    206          .............................
   Equipment.
  Electric & Electronic       312          .............................
   Equipment.
  Transportation Equipment..  229          .............................
  Other Manufacturing.......  880          .............................
Wholesale Trade.............  ...........  1,828
Banking.....................  ...........  543
Finance/Insurance/Real        ...........  4,024
 Estate.
Services....................  ...........  2,996
Other Industries............  ...........  -163
    Total All Industries....  ...........  16,409
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                BULGARIA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................      12.4         12         13
  Real GDP Growth (pct)................       2.4        5.8          5
  GDP by Sector: \3\
    Agriculture........................       1.9        1.5        N/A
    Manufacturing......................       2.9        2.9        N/A
    Services...........................       6.1        6.1        N/A
    Government.........................       3.8        3.3        N/A
  Per Capita GDP (US$).................     1,510      1,459      1,634
  Labor Force (000s)...................     3,819      3,831      3,823
  Unemployment Rate (pct) \4\..........      13.8       18.1       16.8
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............       5.3       15.7       15.6
  Consumer Price Inflation.............       6.2       11.4        3.4
  Exchange Rate (Leva/US$ annual
 average): \5\
    Official...........................       1.8        2.1        2.2
    Parallel...........................       N/A        N/A        N/A
 
Balance of Payments and Trade:
  Total Exports FOB....................       4.0        4.8        5.1
    Exports to United States (US$             147        189        225
     millions) \6\.....................
  Total Imports CIF....................       5.1        5.9        6.5
    Imports from United States (US$           194        191        215
     millions) \6\.....................
  Trade Balance........................      -1.1       -1.2       -1.4
    Balance with United States (US$           -47         -2         10
     millions) \6\.....................
  External Public Debt.................       9.4        9.2        8.2
  Fiscal Deficit/GDP (pct).............       0.9        1.1        1.5
  Current Account Balance/GDP (pct)....      -5.4       -5.8       -5.2
  Debt Service Payments/GDP (pct)......       8.4        9.8        9.9
  Gold and Foreign Exchange Reserves...       3.5        3.4        3.2
  Aid from United States (US$ millions)      38.8       64.6       51.1
   \7\.................................
  Aid from All Other Sources (euro          113.6       93.7        277
   millions) \8\.......................
------------------------------------------------------------------------
\1\ 2001 figures are annualized Bulgarian National Bank (BNB) estimates
  based on six to nine months of historical data, unless otherwise
  stated. All are calendar years. Figures for 1999 and 2000 are
  official.
\2\ GDP and GDP per capita as measured in U.S. dollars declined between
  1999 and 2000 due to changes in the exchange rate.
\3\ Sectoral GDP data is unavailable, but gross value added by sector is
  provided for 1999 and 2000.
\4\ Annual average.
\5\ The CBA is pegged to the EUR. Therefore, the exchange rate reflects
  the EUR/$ rate. Parallel exchange rate does not exist in Bulgaria as
  exchange rates were liberalized in February 1991, according to the
  BNB.
\6\ For January to June 2001, exports to the United States were $131
  million; imports amounted to $119 million. Source: National Statistics
  Institute.
\7\ Both U.S. Agency for International Development (USAID) and
  Department of Defense (DOD) provided assistance. For Fiscal 2001,
  USAID assistance includes $36 million in Southeast Europe enterprise
  Development (SEED) money, primarily for economic restructuring,
  democracy building, support for the social sector, and improving laws
  and law enforcement. For Fiscal 2001, total DOD assistance is
  projected at $15.1 million. For Fiscal 2000, total DOD assistance
  totaled $6.8 million ($10.4 million in Fiscal 1999).
\8\ Assistance provided by the European Union. The Phare program
  extended 865.5 million euro between 1989-1999. From 2000 onwards, EU
  assistance includes two new programs: Instrument for Structural
  Policies for Pre-Accession (ISPA) providing between 83 million and 125
  million euro and Special Accession Program for Agriculture and Rural
  Development (SAPARD) providing 52 million euro.


1. General Policy Framework
    Parliamentary elections in June 2001 resulted in the defeat of the 
government of Prime Minister Ivan Kostov and his Union of Democratic 
Forces (UDF) and its replacement by a coalition government led by 
former king (now Prime Minister) Simeon Saxe-Coburg. The coalition 
consists of the newly-formed National Movement Simeon II (NMSS), which 
holds exactly half of the seats in the National Assembly, and the 
predominantly ethnic-Turkish Movement for Rights and Freedoms (MRF). 
Despite its substantial progress on far-reaching economic reform, 
Kostov's government fell due to popular discontent with persistently 
high unemployment, low incomes, and perceived corruption. The new 
government is committed to maintaining stable macroeconomic policies, 
continuing privatization, attracting foreign investment, and achieving 
membership in NATO and the EU. Key economic portfolios in the new 
government are held by young, Western-trained and -experienced 
reformers.
    Following a severe economic crisis in 1996 and early 1997, the 
Bulgarian government and the International Monetary Fund (IMF) devised 
a stabilization program centered on a currency board arrangement (CBA), 
which succeeded in stabilizing the economy. The CBA provides that the 
Bulgarian National Bank (BNB) must hold sufficient foreign currency 
reserves to cover all domestic currency (leva) in circulation, 
including the leva reserves of the banking system. The BNB can only 
refinance commercial banks in the event of systemic risk to the banking 
system.
    In August 2001, the government proposed an economic program 
including: elimination of tax for reinvested business profits, 
reduction in individual income tax rates, a 17 percent boost in the 
minimum wage to 100 leva ($47) per month, doubling the child subsidy to 
$7.50 per month, hikes in residential energy prices, reform of customs 
to improve collection and fight corruption, reform and centralization 
of the privatization process, cuts in administrative personnel, and a 
business loan fund. During negotiations on a new stand-by agreement the 
IMF expressed concern over the potential loss of tax revenue and wants 
the government to maintain a budget deficit of less than 0.5 percent of 
GDP. With a potentially worsening international economic situation 
following the September 11 events, the government is reducing its 
growth estimates, facing less flexibility in policy choices, and 
reportedly scaling back its tax cut proposals.
    In 2000, the government ran a budget deficit of 1 percent of GDP, a 
figure expected to rise slightly to 1.5 percent of GDP in 2001 due to 
the government's tax policy aimed at stimulating higher economic growth 
and job creation coupled with increases in civil servants' wages and 
pensions. Between January and September 2001, the government ran a 
budget deficit of BGN 182 million or about 0.6 percent of the projected 
2001 GDP. Foreign investment inflows rose to a record US$1.0 billion in 
2000. With delays in some large privatization deals, foreign direct 
investment amounted to US$ 410 million in the first half of 2001. The 
economy as a whole grew by a faster-than-expected 5.8 percent in 2000. 
In addition, the true size of the economy is as much as 20 to 30 
percent larger than that reported by official statistics, which do not 
include the informal or shadow economy. However, economic growth, 
particularly in Bulgaria's private sector, has not been rapid enough to 
prevent a rise in unemployment, which reached 18 percent in 2000. The 
Bulgarian government projects sustained economic growth of four to five 
percent annually over the next few years. In the first half of 2001, 
GDP grew by 4.8 percent over the same period in 2000.
    With two-way trade in goods and services accounting for over 90 
percent of GDP, Bulgaria is very sensitive to changes in the world 
economy and global prices. Over half of Bulgaria's trade is directed 
toward Western and Central Europe. Bulgaria's association agreement 
with the European Union (EU) took effect January 1, 1994, and Bulgaria 
began EU accession negotiations in 2000. A bilateral investment treaty 
with the United States took effect in July 1994.
2. Exchange Rate Policy
    Bulgaria redenominated the currency on July 5, 1999, replacing 1000 
old leva (BGL) with one new lev (BGN). Until January 1, 1999, the CBA 
fixed the exchange rate at 1000 old leva to one German mark. Since 
then, the lev has been pegged to the euro at the rate of 1,955.83 old 
leva (now 1.95583 new leva) per euro. The Bulgarian National Bank (BNB) 
sets an indicative daily Dollar rate (based on the dollar/euro exchange 
rate) for statistical and customs purposes, but commercial banks and 
others licensed to trade on the interbank market are free to set their 
own rates.
    Most commercial banks are licensed to conduct currency operations 
abroad. Companies may freely buy foreign exchange for imports from the 
interbank market. Bulgarian citizens and foreign persons may also open 
foreign currency accounts with commercial banks. Foreign investors may 
repatriate 100 percent of profits and other earnings; however, profits 
and dividends derived from privatization transactions in which Brady 
bonds were used for half the purchase price may not be repatriated for 
four years. Capital gains transfers appear to be protected under the 
revised Foreign Investment Law; free and prompt transfers of capital 
gains are guaranteed in the Bilateral Investment Treaty. A permit is 
required for hard currency payments to foreign persons for direct and 
indirect investments and free transfers unconnected with import of 
goods or services.
    Bulgaria liberalized its foreign currency laws effective January 1, 
2000. Bulgarian and foreign citizens may take up to BGN 5,000 ($2,200) 
or an equivalent amount of foreign currency out of the country without 
declaration. Regulations allow foreign currency up to BGN 20,000 
($8,700) to be exported upon written declaration. Transfers exceeding 
BGN 20,000 must have the prior approval of the BNB. Foreigners are 
permitted to export as much currency over the foreign currency 
equivalent of BGN 20,000 as they have imported into Bulgaria without 
prior approval. All these regulations remain in effect as of October 1, 
2001.
3. Structural Policies
    The government has implemented legal reforms designed to strengthen 
the country's business climate. Bulgaria has adopted legislation on 
foreign investment and secured lending, and is also making significant 
strides in regulation of the banking sector and the securities market. 
However, many businesspersons contend that unnecessary licensing, 
administrative inefficiency and corruption have hindered private 
business development. The government completed a review of licensing 
regimes and eliminated about 100 of these requirements in 2000. In 
April 2001, parliament amended the Law on International Commercial 
Arbitration to allow an international arbiter to participate in 
arbitration when a foreign-owned company is involved. However, the 
court would be in Bulgaria.
    In 1998, Bulgaria reached agreement with the IMF on a three-year 
program of far-reaching structural reforms, particularly the 
privatization of state-owned enterprises (SOEs). In June 1999, the 
government satisfied its commitment to privatize or commence 
liquidation of a group of 41 of the largest loss-making SOEs, including 
the national airline. The privatization process has commenced for a 
number of large enterprises, including the Bulgarian Telecommunications 
Company, the state insurance company (DZI), a tobacco manufacturer 
(Bulgartabak), and others. As of September 2001, the Government of 
Bulgaria had sold approximately 79 percent of state assets destined for 
privatization. All banks except the State Savings Bank have either been 
sold or are in the privatization process. Parliament is expected to 
pass by the end of November 2001 a new Privatization Act aimed at 
increasing transparency, openness and effectiveness of the 
privatization process. This Act is expected to make all remaining SOEs 
(about 1,783 valued at 25 billion leva) available for privatization 
with the exception of some strategic enterprises such as the nuclear 
power plant (Kozloduy) and Bulgargas. The Act is also expected to 
abolish the existing privatization technique of negotiations with 
potential buyers, mandate privatization only through auctions and 
tenders, and eliminate all preferences in favor of controversial 
management-employee buyouts (MEBOs).
    Bulgaria taxes value added, profits and income, and maintains 
excise and customs duties. In 1999, the government reduced the Value 
Added Tax (VAT) by two percentage points to 20 percent and the profits 
tax for large businesses by three percentage points to 27 percent. In 
2000, the profits tax for large businesses was further reduced by two 
percentage points, the amount of non-taxable income for individuals was 
increased and voluntary VAT registration for businesses with turnover 
from BGN 50,000 to BGN 75,000 was introduced. In 2001, the government 
further cut the corporate profit tax rate, personal income tax and 
social security contribution rates by five percentage points, two 
percentage points and three percentage points, respectively.
4. Debt Management Policies
    Bulgaria's democratically-elected government inherited an external 
debt burden of over $10 billion from the Communist era. In 1994, 
Bulgaria concluded agreements rescheduling official (``Paris Club'') 
debt for 1993 and 1994, and $8.1 billion of its commercial (``London 
Club'') debt. As of July 2001, gross external debt amounted to $9.96 
billion and the Bulgarian government projects the debt to remain within 
the same range by the end of 2001. While debt to commercial creditors 
accounted for 58 percent of the total external debt, debt to official 
multilateral and bilateral creditors stood at 36 percent. In the coming 
years, the government hopes to reduce the ratio of foreign debt to GDP 
to 60 percent (derived from the Maastricht Criteria, but not an actual 
requirement for joining the EU or EMU), as a result of projected 
economic growth, limited net borrowing needs, and better debt 
management. The Bulgarian government has asked Paris Club creditors to 
swap official debt for infrastructure and environment projects.
    Under the Extended Fund Facility (EFF), the IMF provided credits of 
about US$814 million. The government has sought additional external 
financing from the World Bank, the European Union, and other donors. 
World Bank lending to date comprises 27 projects for a total value of 
US$1.5 billion. In 1999, the World Bank disbursed a second FESAL of 
US$100 million and approved an Agricultural Structural Adjustment Loan 
worth US$75 million. In 2000, the World Bank approved an Environment 
and Privatization Support Adjustment Loan of US$50 million and Health 
Sector Reform Loan of US$63 million. Two new loans, an Education 
Modernization Loan of US$14 million and a Child Welfare Reform Loan of 
about US$8 million, became effective in 2001.
    According to the Ministry of Finance, at the end of July 2001 
aggregate government foreign debt, excluding guarantees, was US$ 
8,176,400,000. Guarantees amounted to US$502.7 million. 64.7 percent of 
total debt and 67.3 percent of foreign debt were denominated in U.S. 
dollars, according to the Finance Ministry. In addition, 73.4 percent 
of foreign debt had floating interest rates.
5. Significant Barriers to U.S. Exports
    Bulgaria acceded to the World Trade Organization in 1996. Bulgaria 
acceded to the WTO Plurilateral Agreement on Civil Aircraft and 
committed to sign the Agreement on Government Procurement, though it 
has not yet done so. Bulgaria ``graduated'' from Jackson-Vanik 
requirements and was accorded unconditional Most Favored Nation 
treatment by the United States in October 1996.
    Bulgaria's association agreement with the European Union phases out 
industrial tariffs between Bulgaria and the EU while U.S. exporters 
still face duties. This has created a competitive disadvantage for many 
U.S. companies. In July 2000 a bilateral agreement between the EU and 
Bulgaria came into force, reducing duties on some EU farm products to 
zero. In July 1998 Bulgaria joined the Central European Free Trade Area 
(CEFTA). Over the following three years, tariffs on 80 percent of 
industrial goods traded between CEFTA countries will be eliminated. A 
free trade agreement with Turkey took effect in January 1999 and a free 
trade agreement with Macedonia entered into force in January 2000.
    In 1999, 2000, and 2001 average Bulgarian import tariffs were 
reduced significantly, and the government has committed to a further 
round of reductions in average most-favored-nation tariff rates. 
However, tariffs in areas of concern to U.S. exporters, including 
poultry legs and other agricultural goods and distilled spirits, are 
still relatively high. Overall, tariffs on industrial products range 
from zero to 30 percent (average tariff on industrial products is 
equivalent to 10 percent) and from about zero to 74 percent for 
agricultural goods (average tariff on agricultural goods is equivalent 
to 22 percent). In December 1998, Parliament revoked exemption from VAT 
and customs duties for capital contributions in kind valued at over 
$100,000. In the past, some investors have reported that high import 
tariffs on products needed for the operation of their establishments in 
Bulgaria were a significant barrier to investment.
    The U.S. Embassy has no complaints on record that the import 
license regime has negatively affected U.S. exports. Licenses are 
required for a specific, limited list of goods including radioactive 
elements, rare and precious metals and stones, certain pharmaceutical 
products, and pesticides. Armaments and military-production technology 
and components also require import licenses and can only be imported by 
companies licensed by the government to trade in such goods. Trade in 
dual-use items is also controlled.
    Customs regulations and policies are sometimes reported to be 
cumbersome, arbitrary, and inconsistent. Problems cited by U.S. 
companies include excessive documentation requirements, slow processing 
of shipments, and corruption. Bulgaria uses the single customs 
administrative document used by European Community members.
    The State Agency on Standardization & Metrology is the competent 
authority for testing and certification of all products except 
pharmaceuticals, food, and telecommunications equipment. The testing 
and certification process requires at least one month. This agency 
shares responsibilities for food products with the Ministries of 
Agriculture and Health. The responsible authority for pharmaceuticals 
is the National Institute for Pharmaceutical Products in the Ministry 
of Health, which establishes standards and performs testing and 
certification and is also responsible for drug registration. Approval 
for any equipment interconnected to Bulgaria's telecommunications 
network must be obtained from the State Telecommunications Commission. 
The 1999 Law on Protection of Consumers and Rules of Trade regulates 
labeling and marking requirements. Labels must contain the following 
information in Bulgarian: quality, quantity, ingredients, certification 
authorization number (if any), and manner of storage, transport, use or 
maintenance.
    Bulgaria is making an effort to harmonize its national standards 
with international standards. Bulgaria is a participant in the 
International Organization for Standardization and the International 
Electrotechnical Commission. Bulgaria is in the process of harmonizing 
80 percent of its standards to European standards, in anticipation of 
joining the European Union. As of October 2001, Bulgaria has adopted 
3,500 EU standards representing 40 percent of all applicable EU 
standards. Under the 1999 National Domestic Standards Act, all domestic 
standards are no longer mandatory. The major requirements for the 
safety of products are regulated in ordinances issued by the separate 
ministries in compliance with the respective EU directives. Bulgarian 
authorities expect to adopt 80 percent of the applicable EU standards 
by 2005.
    All imports of goods of plant or animal origin are subject to 
European Union phytosanitary and veterinary control standards, and 
relevant certificates should accompany such goods. However, Bulgarian 
authorities have modified their national regulations to accept U.S. 
Department of Agriculture certificates.
    As in other countries aspiring to membership in the European Union, 
Bulgaria's 1998 Radio and Television Law requires a ``predominant 
portion'' of certain programming to be drawn from European-produced 
works and sets quotas for Bulgarian works within that portion. However, 
this requirement will only be applied to the extent ``practicable.'' 
Foreign broadcasters transmitting into Bulgaria must have a local 
representative, and broadcasters are prohibited from entering into 
barter agreements with television program suppliers.
    Foreign persons cannot own land in Bulgaria because of a 
constitutional prohibition, but foreign-owned companies registered in 
Bulgaria are considered to be Bulgarian persons. Foreign persons may 
acquire ownership of buildings and limited property rights, and may 
lease land. Local companies where foreign partners have controlling 
interests must obtain prior approval (licenses) to engage in certain 
activities: production and export of arms/ammunition; banking and 
insurance; exploration, development and exploitation of natural 
resources; and acquisition of property in certain geographic areas.
    There are no specific local content or export-performance 
requirements nor specific restrictions on hiring of expatriate 
personnel, but residence permits are often difficult to obtain. In its 
Bilateral Investment Treaty with the United States, Bulgaria committed 
itself to international arbitration in the event of expropriation, 
investment, or compensation disputes.
    Foreign investors complain that tax evasion by private domestic 
firms combined with the failure of the authorities to enforce 
collection from large, often financially precarious, state-owned 
enterprises places the foreign investor at a real disadvantage.
    In June 1999, Parliament adopted a new law on procurement replacing 
the 1997 Law on Assignment of Government and Municipal Contracts. This 
legislation defines terms and conditions for public orders and aims for 
increased transparency and efficiency in public procurement. However, 
bidders still complain that tendering processes are frequently unclear 
and/or subject to irregularities, fueling speculation on corruption in 
government tenders. U.S. investors have also found that in general 
neither remaining state enterprises nor private firms are accustomed to 
competitive bidding procedures to supply goods and services to these 
investors within Bulgaria. However, tenders organized under projects 
financed by international donors have tended to be open and 
transparent.
6. Export Subsidies Policies
    The government currently applies no export subsidies. However, a 
1995 law gave the State Fund for Agriculture the authority to stimulate 
the export of agricultural and food products through export subsidies 
or guarantees. The government does provide concessionary finance to 
agricultural producers for purchase of equipment and farming inputs.
7. Protection of U.S. Intellectual Property
    Bulgarian intellectual property rights (IPR) legislation is 
generally adequate, with modern patent and copyright laws and criminal 
penalties for copyright infringement. Bulgarian legislation in this 
area is considered to be among the most modern in Central and Eastern 
Europe. Amendments to the Law on Copyright and Neighboring Rights 
adopted in March 2000 extended copyright protection to 70 years, and 
introduced a new neighboring right for film producers, provisional 
measures to preserve evidence of IPR infringement, and special border 
measures. In September 1999, Parliament passed a series of laws on 
trademarks and geographical indications, industrial designs, and 
integrated circuits.
    Until recently, Bulgaria was the largest source of compact-disk and 
CD-ROM piracy in Europe and was one of the world's leading exporters of 
pirated goods. For this reason, Bulgaria was placed on the U.S. Trade 
Representative's Special 301 Priority Watch List in January 1998. In 
1998, enforcement improved considerably with the introduction of a CD-
production licensing system. In recognition of the significant progress 
made by the Bulgarian government in this area, the U.S. Trade 
Representative removed Bulgaria from all Watch Lists in April 1999.
    Bulgaria is a member of the World Intellectual Property 
Organization (WIPO) and a signatory to the following agreements: the 
Paris Convention for the Protection of Intellectual Property; the Rome 
Convention for the Protection of Performers, Producers of Phonograms 
and Broadcast Organizations; the Geneva Phonograms Convention; the 
Madrid Agreement for the Repression of False or Deceptive Indications 
of Source of Goods; the Madrid Agreement on the International 
Classification and Registration of Trademarks; the Patent Cooperation 
Treaty; the Universal Copyright Convention; the Berne Convention for 
the Protection of Literary and Artistic Works; the Lisbon Agreement for 
the Protection of Appellations of Origin and their International 
Registration; the Budapest Treaty on the International Recognition of 
the Deposit of Microorganisms for the Purpose of Patent Protection; the 
Nairobi Treaty on the Protection of the Olympic Symbol, the 
International Convention for the Protection of New Varieties of Plants; 
the Vienna Agreement Establishing an International Classification of 
the Figurative Elements of Marks; the Nice Agreement Concerning the 
International Classification of Goods and Services for the Purposes of 
the Registration of Marks; the Strasbourg Agreement Concerning the 
International Patent Classification; and the Locarno Agreement 
Establishing an International Classification for Industrial Designs. On 
acceding to the WTO, Bulgaria agreed to implement the Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) without a 
transitional period. In January 2001, the Bulgarian parliament ratified 
the WIPO ``Internet'' treaties, the WIPO Copyright Treaty and the WIPO 
Performance and Phonograms Treaty.
    Pharmaceuticals manufacturers note that Bulgaria has not introduced 
data exclusivity or supplementary patent protection in line with the 
Agreement on TRIPS and the EU Association Agreement. The industry 
further claims that drug pricing and reimbursement procedures are not 
transparent. These companies also report that enforcement of patent 
rights for their products is ineffective. The Bulgarian government has 
also proposed amendments strengthening protection for pharmaceutical 
tests.
    Software piracy continues to be a problem, although an industry 
legalization campaign, which began in 1999, has made dramatic gains 
against unauthorized software. Local software industry representatives 
report that, with good cooperation from Bulgarian law enforcement 
authorities, the campaign has brought the piracy rate down to 
approximately 80 percent of the market. Thanks to improvements in 
enforcement and the legal regime, audiovisual piracy has decreased 
dramatically since 1998.
    U.S. industries report that lack of effective judicial remedies for 
infringement of intellectual property rights is a barrier to 
investment. U.S. companies have also cited illegal use of trademarks as 
a barrier to the Bulgarian market.
8. Worker Rights
    a. The Right of Association: The 1991 Constitution provides for the 
right of all workers to form or join trade unions of their choice. This 
right has apparently been freely exercised. Estimates of the unionized 
share of the work force range from 30 to 50 percent. There are two 
large trade union confederations, the Confederation of Independent 
Trade Unions of Bulgaria (CITUB) and Podkrepa, which between them 
represent the overwhelming majority of unionized workers. Although 
there are other legally registered unions, only CITUB and Podkrepa have 
the status of ``social partners'' with the right to participate in the 
Tripartite Councils that were strengthened as part of the institution 
of the Currency Board. The unions attained this status through a 
legislated census, the results of which were announced on December 
1998. The next census is scheduled to take place in early 2002.
    The 1986 Labor Code recognizes the right to strike when other means 
of conflict resolution have been exhausted, but ``political strikes'' 
are forbidden. Workers in essential services (military, police, energy, 
health-care, post services, and judiciary) are also subject to a 
blanket prohibition from striking. However, Podkrepa has complained 
that a 1998 law denying workers the right to appeal government 
decisions on the legality of strikes is unconstitutional and violates 
an ILO convention. Both labor unions challenged the legality of the 
definition of essential services and they have contacted the ILO to 
investigate the legality of blanket restrictions on the right to strike 
for workers in the health, transportation, and energy sectors. The 
Labor Code's prohibitions against antiunion discrimination include a 
six-month period of protection against dismissal as a form of 
retribution. There are no restrictions on affiliation or contact with 
international labor organizations, and unions actively exercise this 
right.
    b. The Right to Organize and Bargain Collectively: The Labor Code 
institutes collective bargaining on the national and local levels. The 
legal prohibition against striking by key public sector employees 
weakens their bargaining position. However, these groups have been able 
to influence negotiations by staging protests and engaging in other 
pressure activities without going on strike. Labor unions have 
complained that while the legal structure for collective bargaining was 
adequate, many employers failed to bargain in good faith or to adhere 
to concluded agreements. Labor observers viewed the government's 
enforcement of labor contracts as inadequate. The backlog of cases in 
the legal system delayed redress of workers' grievances. The same 
obligation of collective bargaining and adherence to labor standards 
prevails in the export processing zones.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor. As of September 2000, 
construction battalions in the armed forces have been terminated.
    d. Minimum Age of Employment of Children: The Labor Code sets the 
minimum age for employment at 16, and 18 for dangerous work. The 
Ministry of Labor and Social Welfare (MLSW) is responsible for 
enforcing these provisions. Child labor legislation conforms to ILO 
Convention 182, ratified June 17, 2000, by Bulgaria, and EU standards. 
However, low funding and other pressing economic priorities hamper 
effective child labor law enforcement, compilation of adequate 
government statistics, and public awareness campaigns. The shadow 
economy fosters child labor violations. Observers have estimated that 
between 50,000 and 100,000 children under 16 are illegally employed in 
Bulgaria, and the problem appears to be growing due to persistent high 
unemployment and low wages for adults, particularly in rural areas.
    e. Acceptable Conditions of Work: The national monthly minimum wage 
equates to approximately $47. Delayed payment of wages continues to be 
a problem with certain employers in Bulgaria. The constitution 
stipulates the right to social security and welfare aid assistance for 
the temporarily unemployed, although in practice such assistance is 
often late. The Labor Code provides for a standard workweek of 40 hours 
with at least one 24-hour rest period per week. The MLSW is responsible 
for enforcing both the minimum wage and the standard workweek. 
Enforcement has been generally effective in the state sector, but is 
weaker in the emerging private sector.
    Under the Labor Code, employees have the right to remove themselves 
from work situations that present a serious or immediate danger to life 
or health without jeopardizing their continued employment. In practice, 
refusal to work in such situations would result in loss of employment 
for many workers. The 1998 Law on Safety and Health Conditions 
regulates health and safety standards in the workplace and requires all 
employers to introduce minimum health and safety standards by the end 
of 2001. During this three-year phase-in period, employers that do not 
provide the minimum health and safety standards in the workplace are 
obliged to pay an added remuneration to workers. The Law mandates that 
all factories that do not provide the minimum health and safety 
standards should be shut down and requires that employers establish 
joint employer/labor committees to monitor health and safety issues.
    f. Rights in Sectors with U.S. Investment: Conditions do not 
significantly differ in the few sectors with a U.S. presence.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  1
Total Manufacturing.........  ...........  31
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          0            .............................
   Products.
  Primary & Fabricated        (\1\)        .............................
   Metals.
  Industrial Machinery and    0            .............................
   Equipment.
  Electric & Electronic       0            .............................
   Equipment.
  Transportation Equipment..  0            .............................
  Other Manufacturing.......  10           .............................
Wholesale Trade.............  ...........  0
Banking.....................  ...........  0
Finance/Insurance/Real        ...........  0
 Estate.
Services....................  ...........  0
Other Industries............  ...........  2
    Total All Industries....  ...........  33
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                             CZECH REPUBLIC


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                             1999      2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (US$ billion) \2\..........    53.06      50.7       54.8
  Real GDP Growth (pct)..................     -0.2       2.9        3.3
  GDP by Sector (pct): \2\
    Agriculture..........................      3.7       3.8        3.9
    Manufacturing........................     26.3      27.8       29.0
    Services.............................     56.8      56.1       56.5
    Government \3\.......................     32.5      33.1       33.5
  Per Capita GDP (US$) \2\...............    5,405     5,004      5.329
  Labor Force (000s).....................    5,170     5,203      5,213
  Unemployment (pct).....................      9.4       8.8        8.5
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)...............      8.1       7.7       10.0
  Consumer Price Inflation...............      2.1       3.9        6.0
  Exchange Rate (CKR/US$):
    Official.............................    34.60     38.59      38.90
 
Balance of Payments and Trade: \4\
  Total Exports FOB (USD bill)...........     26.8      29.0       21.6
    Exports to United States.............      0.6       0.8        0.7
  Total imports CIF (USD bill)...........     28.9      32.5       23.9
    Imports from United States...........      1.2       1.4        0.9
  Trade Balance (USD bill)...............    -2.06      -3.5       -2.3
    Balance with United States...........    -0.53     -0.61      -0.28
  Current Account Deficit/GDP (pct)......     -1.5      -4.8       -5.0
  External Public Debt \5\...............     24.3      22.0       23.0
  Fiscal Deficit (Central)/GDP (pct).....      1.6       1.8        9.4
  Debt Service Payments/GDP (pct)........      5.6       8.9        6.8
  Gold and Foreign Exchange Reserves.....     12.8      13.1       14.0
  Aid from United States \6\.............      6.5       6.0        8.9
  Aid from All Other Sources.............      N/A       N/A        N/A
------------------------------------------------------------------------
\1\ Unless stated otherwise, 2001 figures are based on the latest data
  of the Czech Statistical Office (CSO) from September 2001, of the
  Ministry of Finance and/or unofficial estimates from the Czech
  National Bank.
\2\ GDP at factor cost, percentage changes calculated in local currency.
\3\ Central government spending as percent of GDP.
\4\ January through August 2001 data. Czech imports do not include re-
  exports of U.S. goods through other countries.
\5\ In absolute numbers, the figure for external debt does not change,
  the growth reflects shifts in DEM vs. US$ exchange rates.
\6\ Military aid only, U.S. AID assistance was phased out by September
  30, 1997.


1. General Policy Framework
    The Czech Republic is a small, open economy with a free and 
competitive market. It is currently recovering from unfinished 
structural reforms problems mainly in the fields of bank privatization, 
industrial restructuring, legal reform, and financial markets 
transparency. Unfinished structural reforms lay at the heart of the 
Czech Republic's severe recession in 1998-1999, which led to an 
economic contraction of 2.3 percent in 1998. Economic recovery has been 
strong in 2000 and 2001, growing at 3.9 percent in the first half of 
2001. However, a growing fiscal deficit and the effects of the 
worldwide slowdown may threaten continued expansion.
    Until 1998, the Government of the Czech Republic pursued balanced 
budgets, incurring only small actual deficits. Budget deficits have 
traditionally been financed through the issuance of government bonds 
purchased by private investors, predominantly commercial banks. 
Economic recession, tax shortfalls, and the Social Democratic 
government's pledge to support a wide range of social welfare and 
investment programs led to a 1999 budget deficit of 1.6 percent of GDP. 
The deficit planned for the 2000 budget (1.8 percent of GDP) grew to 
2.4 percent, and the deficit planned for the 2001 budget (2.4 percent 
of GDP) is currently 9.5 percent of GDP and may continue to grow. The 
2002 budget, under discussion in late 2001, will also be in deficit.
    In 1998, the Czech government approved a package of incentives to 
attract investments. The incentives are offered to foreign and domestic 
firms that invest $10 million or more in manufacturing through a newly 
registered company. The package includes tax breaks of up to 10 years 
offered in two five-year periods; duty-free imports of high-tech 
equipment and a 90-day deferral of Value-Added Tax payments (VAT); 
potential for creation of special customs zones; job creation benefits; 
training grants; opportunities to obtain low-cost land; and the 
possibility of additional incentives for secondary investments and 
production expansion. The incentives package was further enhanced by 
the new Act on Investment Incentives, effective as of May 1, 2000, 
which codifies, simplifies and extends the original national incentives 
scheme. The investment threshold was lowered to $5 million in regions 
with the unemployment rate at least 25 percent higher than the national 
average and investors in these regions can receive up to 200 thousand 
crowns (US$ 5,000) for each newly created job plus 35 percent of the 
requalification costs, among other improvements.
    The incentives resulted in a strong inflow of foreign direct 
investment ($4.9 billion in 1999, $4.6 billion in 2000, $2.3 billion to 
June 30, 2001), and the trend is expected to continue. Portfolio 
investments in 2001 were $3.7 billion to June 30, 2001.
    The Czech National Bank (CNB) is responsible by law for monetary 
policy. The primary instrument used by the bank to influence monetary 
policy is the two-week repo rate. Following sharp and growing current 
account imbalances in the spring of 1997, the central bank implemented 
a series of measures including a floating exchange rate, relatively 
high interest rates, and high compulsory bank reserves designed to 
dampen inflation and reduce external imbalances. Monetary policy during 
most of 1998 remained restrictive. In 1999, with the current account 
well on the way to recovery and the exchange rate of the crown 
relatively strong, the central bank, ahead of its inflation target for 
a second year in row, cut interest rates several times. Influenced by 
the government's expansive fiscal policy, increasing consumer demand 
and the possibility of new demands for wages increase in the fall, the 
CNB slightly increased interest rates in 2001. The CNB is likely to 
meet its net inflation target of two to four percent at the end of 
2001.
2. Exchange Rate Policy
    The Czech crown is fully convertible for most business 
transactions. The Foreign Exchange Act provides a legislative framework 
for full current account convertibility, including all trade 
transactions and most investment transactions, subject to government 
action on implementing regulations. As of 2000, all capital account 
restrictions were removed except for the purchase of real estate in the 
Czech Republic by foreigners. Foreign company branches will be able to 
acquire real estate as of 2002, in accordance with the Czech Republic's 
commitments in the Organization for Economic Cooperation and 
Development (OECD).
    The Czech crown, floating freely since the spring of 1997, has 
remained relatively steady, withstanding Russia's 1998 financial 
turmoil. The crown appreciated in value due to significant interest 
rate differentials between the Czech Republic and its major trading 
partners. It has remained strong even after the central bank reduced 
interest rates significantly in 1998 and 1999, as currency traders bet 
on EU convergence. The CNB's recent move against inflation, weakening 
foreign currencies, and expected inflows from privatization have pushed 
the crown to record highs in late 2001.
3. Structural Policies
    The government sees full membership in the European Union (EU) as 
one of its highest foreign policy priorities. Relations between the 
Czech Republic and the EU are currently governed by an EU association 
agreement signed in 1991. Detailed accession negotiations began in 
November 1998. Even though the Czech government is striving for full EU 
membership by end 2003, most observers do not anticipate that will be 
achieved prior to 2004 or 2005. As part of the EU accession process, 
many of the Czech Republic's regulatory policies and practices are 
being harmonized with EU norms. Through membership in OECD, the Czech 
Republic agreed to meet, with relatively few exceptions, OECD standards 
for equal treatment of foreign and domestic investors and restrictions 
on special investment incentives. The United States has succeeded in 
using the OECD membership process to encourage the Czech Republic to 
make several improvements in the business climate for U.S. firms.
    Czech tax codes are generally in line with European Union tax 
policies. According to OECD methodology, in 2000 tax collections 
amounted to 39.5 percent of GDP. In 2000, the government reduced taxes 
on corporate profits from 35 percent to 31 percent. The tax rate for 
the highest personal income tax bracket was lowered to 32 percent. 
Employer and employee social insurance contributions are respectively 
35 and 12.5 percent. The government permits tax write-offs of bad 
debts, although with less generous treatment of pre-1995 debts. Firms 
are allowed to write off the first year's share of a bad debt without 
filing suit against the debtor, though subsequent write-offs must 
document unsuccessful efforts to collect past due amounts. U.S. firms 
have complained that Czech tax legislation effectively penalizes use of 
holding company structures by leveling both corporate tax and dividends 
withholding tax on profit flows between group companies, thus creating 
double taxation on such profits. Czech law does not permit intra-group 
use of losses (i.e., offsetting losses in one group entity against 
profits in another), and imposes corporate tax on dividends received 
from foreign holding without allowing use of a foreign tax credit for 
the underlying tax suffered in the subsidiary's home jurisdiction.
    The need for an improved bankruptcy code remains an important 
structural impediment. Most observers believe the slow and uneven 
courts and weakness of creditors' legal rights has hampered the current 
bankruptcy law from acting as an effective vehicle for corporate 
restructuring. Members of Parliament and others have called for a 
bankruptcy law with provisions similar to the U. S. Chapter Eleven or 
``London Rules'' for out-of-court settlements to encourage 
resuscitation of troubled firms. Several amendments, the latest in 
force as of May 1, 2000, have sought to address these concerns. 
Presently, there is a three to four-year backlog in the bankruptcy 
courts and only a small secondary market for the liquidation of seized 
assets. A complete overhaul of the bankruptcy code is under 
consideration for late 2001.
4. Debt Management Policies
    The Czech Republic maintains a moderate foreign debt and has 
received investment grade ratings from the major international credit 
agencies. In 2000, gross foreign debt measured $22 billion and is not 
expected to change much in 2001. As of June 30, 2001, gross foreign 
debt measured $21 billion, the bulk being the debt of companies ($11.8 
billion) and commercial banks ($8.3 billion). Debt service as a 
percentage of GDP and debt service to exports stand at 7.1 percent and 
8.5 percent, respectively. The Czech Republic repaid its entire debt 
with the International Monetary Fund (IMF) ahead of schedule. Under the 
Paris Club, the Czech Republic, as member of OECD, rescheduled its 
official credits to Russia. The government was considering its first 
issuance of Eurobonds in 2001.
5. Significant Barriers to U.S. Exports
    The Czech Republic is committed to a free market and maintains an 
open economy with few barriers to trade and investment. It is a member 
of the World Trade Organization (WTO) and of the WTO's Information 
Technology Agreement. The Czech Republic is not a signatory to the 
General Agreement on Tariffs and Trade (GATT) civil aircraft code.
    The Czech Republic's EU association agreement established 
preferential tariffs for non-agricultural, EU-origin products to the 
Czech markets, while maintaining higher most-favored-nation rates for 
U.S. and other non-EU products. As of 2001, EU industrial products 
enjoy duty-free status. A number of U.S. companies from different 
industry sectors have complained that tariff preferences given the EU 
under the agreement have diminished their business prospects and 
ability to compete against EU-origin products.
    Trade in agricultural/food products is generally free of major 
trade barriers, although technical barriers continue to hamper imports 
of certain products. In anticipation of EU membership, the Czech 
Republic is rewriting much of agricultural/food products standards and 
trade legislation. During this transition phase, it is not always clear 
which rules apply, a situation which has led to some delays in 
approval. The harmonization of standards with the EU should ease the 
paperwork burden for those exporters already exporting to the EU. 
However, the alignment of the Czech food legislation with the EU also 
means that certain products currently prohibited in the EU will also be 
prohibited in the Czech Republic. U.S. exporters of beef, poultry, pork 
and horsemeat are not able to ship to the Czech Republic due to 
concerns about special risk materials shared by the EU. In November 
2000, reacting to the EU BSE outbreak, the Czech State Veterinary 
Administration prohibited specific risks' materials usage in pet food, 
and the Animal and Plant Health Inspection Service (APHIS) cannot 
guarantee that U.S. pet food producers meet this requirement. Another 
problem with the pet food certificate is the bacterial testing 
requirement, which is stricter in the Czech Republic than in the EU. 
APHIS is currently in the process of negotiating possible changes to 
the Czech veterinary requirements
    A final bill in line with EU directives to regulate Genetically 
Modified Organisms (GMOs) entered into force January 1, 2001, including 
decrees regulating new GMO varieties for field testing that the Czech 
Republic continues to approve.
    In July 2000, the Czech Republic signed the Protocol on Conformity 
Assessment and Acceptance of Industrial Products (PECA) with the EU, 
which as of January 1, 2001, enables imports of EU industrial products 
without any additional testing. The Czech Republic has refused to 
extend the benefit of this agreement to products produced in the United 
States that meet EU certification requirements.
    American business people often cite a convoluted, bureaucratic 
system (both at national and local levels), which can act as an 
impediment to market access. Often considerable time is required to 
finalize a deal, or enforce the terms of a contract. On occasion, 
European companies have sought to use the Czech Republic's interest in 
EU membership to gain advantage in commercial competition.
    The government is required by law to hold tenders for major 
procurement. A procurement law introduced in 1994 proved 
unsatisfactory. Several revisions aimed at making the law simpler and 
more transparent failed. Recognizing that no amendment will help, the 
Czech Republic is currently working on a brand new procurement law to 
enter force in 2002. The Czech Republic is not a signatory of the WTO 
Government Procurement Agreement.
    The Czech Ministry of Industry and Trade issues import licenses to 
those seeking to import selected goods into the Czech Republic. While 
most products and services are exempt from licensing, oil, natural gas, 
pyrotechnical products, sporting guns, and ammunition require an import 
license.
    Legally, foreign and domestic investors are treated the same, and 
both are subject to the same tax codes. The government does not screen 
foreign investment projects other than for a few sensitive industries, 
e.g., in the defense sector. The government evaluates all investment 
offers for the few state enterprises still undergoing privatization. As 
an OECD member, the Czech Republic committed not to discriminate 
against foreign investors in privatization sales, with only a few 
sectors excepted. The government has overcome political resistance to 
foreign investment in certain sensitive sectors, such as petrochemical, 
telecommunications and breweries. The ban on foreign ownership of real 
estate remains another important exception, although foreign-owned 
Czech firms may purchase real estate freely.
    U.S. investors interested in starting joint ventures with or 
acquiring Czech firms have experienced problems with unclear ownership 
and lack of information on company finances. Investors have complained 
about the difficulty of protecting their rights through legal means 
such as enforceable secured interests. In particular, investors have 
been frustrated by the lack of effective recourse to the court system. 
The slow pace of court procedures is often compounded by judges' 
limited understanding of complex commercial cases. The Czech Republic 
imposes a Czech language requirement for trade licenses for most forms 
of business. This requirement can be fulfilled by a Czech partner, but 
this can be burdensome and involves additional risks.
    The opaque nature of the stock market puts U.S. investors and 
financial services providers at a competitive disadvantage. While stock 
market reforms were enacted in 1996 to help protect small shareholders 
and increase transparency of transactions, enforcement has been uneven. 
A Czech Securities Commission opened in 1998 with a mission of 
improving the regulatory framework of the capital market, increasing 
capital market transparency, and restoring investor confidence. To the 
date, the Commission issued 5,405 authorized rulings, and in the re-
licensing process, which is complete, revoked 240 licenses. It has, 
however, been hampered by budgetary constraints and a lack of rule-
making authority. A new law on the Securities Commission is being 
prepared to improve its status.
    U.S. firms also complain about the lack of consistency in the 
application of customs norms. These problems are primarily due to the 
newness of recent regulatory changes and rapid expansion of customs 
personnel. Training efforts are underway to correct the situation and 
address these concerns.
6. Export Subsidies Policy
    The Czech Export Bank provides export guarantees and credits to 
Czech exporters. The bank follows OECD consensus on export credits. 
Additionally, the government maintains a fund through which it 
purchases domestic agricultural surpluses for resale on international 
markets. For some commodities, pricing is established at a level that 
includes a subsidy to local producers.
7. Protection of U.S. Intellectual Property
    The Czech Republic is a member of the Berne and Universal Copyright 
Conventions and the Paris Convention on Industrial Property. Czech laws 
for the protection of intellectual property rights (IPR) are generally 
good, but enforcement has lagged. Existing legislation guarantees 
protection of all forms of property rights, including patents, 
copyrights, trademarks, and semiconductor chip layout design. The 
Czechs continue to harmonize with the Trade Related Aspects of 
Intellectual Property Rights (TRIPS) agreement. An amendment providing 
70 years of copyright protection for literary works, up from the 
present 50 years entered into force on December 1, 2000. The Czech 
Republic passed most of its TRIPs-related legislation in 2000 and the 
last commitment, the broadcasting law, entered into force in July 2001.
    As a result of enforcement weaknesses and delays in indictments and 
prosecutions, the U.S. government placed the Czech Republic on its 
Special 301 Watch List during the 1999 cycle. The Embassy continues to 
work with U.S. industry and Czech government officials to improve 
enforcement of IPR norms. Two recent legislative amendments expanded 
the tools for enforcement of IPR. One entered force on December 1, 
1999, and boosts the powers of the customs service to seize counterfeit 
goods. The other, in effect as of September 1, 2000, allows the Czech 
Commercial Inspection (CCI) to act directly in IPR cases. Formerly, the 
CCI could only act in conjunction with the police. As a result of these 
changes, the United States government removed the Czech Republic from 
the Special 301 Watch List in 2001.
8. Worker Rights
    a. The Right of Association: Czech law provides workers with the 
right to form and join unions of their own choice without prior 
authorization, and the government respects this right in practice. Most 
workers are members of unions affiliated with the CzechMoravian Chamber 
of Trade Unions (CMKOS), a democratically oriented, republic-wide 
umbrella organization for member unions. The unions are not affiliated 
with political parties and exercise their independence. Workers have 
the right to strike, except for those whose role in public order or 
public safety is deemed crucial. By law, strikes may take place only 
after mediation efforts fail. Unions are free to form or join 
federations and confederations and to affiliate with and participate in 
international bodies. Union membership, compulsory under the Communist 
regime, has declined since 1990.
    b. The Right to Organize and Bargain Collectively: The law provides 
for collective bargaining, which is generally carried out by unions and 
employers on a company basis. The potential scope for collective 
bargaining is more limited in the government sector, where wages depend 
on the budget.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, including that performed by children, and 
it is not practiced.
    d. Minimum Age for Employment of Children: The Labor Code 
stipulates a minimum working age of 15 years, although children who 
have completed courses at special schools (schools for the mentally 
disabled and socially maladjusted) may work at age 14. These 
prohibitions are enforced in practice.
    e. Acceptable Conditions of Work: The government sets minimum wage 
standards. The minimum wage is 5,000 Czech crowns per month 
(approximately $132), although the monthly average is 14,018 Czech 
crowns (approximately $369) per month. Average net wages are 2.7 times 
as high as official sustenance costs. The minimum wage provides a 
sparse standard of living for an individual worker or family, although 
allowances are available to families with children. The law mandates a 
standard workweek of 40 hours. It also requires paid rest of at least 
30 minutes during the standard 8hour workday, as well as annual leave 
from four weeks up to eight weeks depending on the profession. Overtime 
ordered by the employer may not exceed 150 hours per year or 8 hours 
per week as a standard practice. Industrial accident rates are not 
unusually high. Workers have the right to refuse work endangering their 
life or health without risk of loss of employment.
    f. Rights in Sectors with U.S. Investment: All of the above 
observations on worker rights apply to firms with foreign investment. 
Rights in these sectors do not differ from those in other sectors of 
the economy. Conditions in sectors with U.S. investment do not differ 
from those outlined above.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  86
Total Manufacturing.........  ...........  151
  Food & Kindred Products...  49           .............................
  Chemicals & Allied          42           .............................
   Products.
  Primary & Fabricated        7            .............................
   Metals.
  Industrial Machinery and    15           .............................
   Equipment.
  Electric & Electronic       -88          .............................
   Equipment.
  Transportation Equipment..  136          .............................
  Other Manufacturing.......  -10          .............................
Wholesale Trade.............  ...........  119
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  (\2\)
 Estate.
Services....................  ...........  42
Other Industries............  ...........  35
    Total All Industries....  ...........  802
------------------------------------------------------------------------
\1\ Less than $500,000 (+/-).
\2\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                DENMARK


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................    176,160     162,608     168,000
  Real GDP Growth (pct) \2\ \3\.....        2.1         3.2         1.2
  GDP by Sector: \4\
    Agriculture.....................      4,018       3,693       3,800
    Manufacturing...................     26,030      24,276      25,000
    Services........................     72,261      68,234      70,700
    Government......................     34,214      30,520      31,500
  Per Capita GDP (US$) \2\..........     33,118      30,467      31,360
  Labor Force (000s)................      2,823       2,837       2,844
  Unemployment Rate (pct)...........        5.6         5.3         5.2
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) (pct)....        2.8        -1.4         2.3
  Consumer Price Inflation (pct)....        2.5         3.0         2.3
  Exchange Rate (DKK/US$ annual
 average):
    Official........................       6.98        8.09        8.09
 
Balance of Payments and Trade:
  Total Exports FOB \5\.............     49,679      50,132      55,000
    Exports to United States \5\....      2,774       2,977       3,700
  Total Imports CIF \5\.............     44,669      44,218      47,000
    Imports from United States \5\..      2,131       1,810       2,000
  Trade Balance \5\.................      5,010       5,914       8,000
    Balance with United States \5\..        643       1,167       1,700
  External Public Debt..............     25,072      27,070      22,000
  Fiscal Deficit/GDP (pct)..........       -3.1        -2.8        -2.0
  Current Account Surplus/GDP (pct).        1.7         2.2         3.1
  Debt Service Payments/GDP (pct)...        1.4         1.9         1.7
  Gold and Foreign Exchange Reserves     24,240      15,093      17,000
  Aid From United States............        N/A         N/A         N/A
  Aid From Other Sources............        N/A         N/A         N/A
------------------------------------------------------------------------
Note: Dollar figures are based on mean exchange rate for calendar year.
\1\ 2001 figures are all estimates based on available data as of October
  5, 2001.
\2\ Gross Domestic Product in Market Prices.
\3\ Percentage changes calculated in local currency.
\4\ GDP measured as ``Gross Value Added by Industry.''
\5\ Merchandise trade (excluding European Union agricultural export
  subsidies).
 
Sources: Danish Bureau of Statistics, Danish Ministry of Economics,
  Danmarks Nationalbank (the Central Bank), and Embassy calculations/
  projections.


1. General Policy Framework
    Denmark is a small, highly industrialized ``value-added'' country 
with a long tradition of extensive foreign trade, free capital 
movement, and political stability. It also has an efficient and well-
educated labor force, and a modern infrastructure that effectively 
links Denmark with the rest of Europe. The Oeresund bridge connecting 
Denmark and Sweden that opened in 2000 is expected to assist the 
Oeresund region to become a center and a gateway that will attract 
significant foreign investment in high-tech industries, including 
biotechnology, pharmaceutical research, and information technology. 
Denmark's natural resources are concentrated in oil and gas fields in 
the North Sea, which have, together with renewable energy, made Denmark 
a net exporter of energy.
    Despite projected economic growth rates of less than two percent 
annually in 2001 and 2002, the Danish economy is fundamentally strong, 
with comfortable public budget and balance of payments surpluses. In 
addition, the Danish economy, due to its dependence on foreign 
developments, is flexible and ready to adapt rapidly to changed world 
developments. Following the September 11, 2001, terrorist attacks in 
the United States, economic growth projections have been slightly 
reduced and it is the government's hope and goal to avoid a recession. 
The government pursues a carefully monitored economic policy including 
a fiscal policy of small public expenditure increases and a tight 
monetary and exchange rate policy firmly linking the Danish krone to 
the European Union's (EU) common currency, the euro.
    Developments during the first half of 2001 in some key economic 
indicators (limited growth in private consumption, mostly due to a drop 
in car sales, and a growing surplus on the current account) suggest 
that the government's austerity measures, the ``Whitsun Package'' 
introduced in the summer of 1998, remain efficient. The Whitsun 
package, which aimed at curbing private consumption and restoring a 
balance of payments surplus, includes reduction of tax credits for debt 
interest payments in order to discourage new loan taking. The measures 
also aimed at increasing the incentive to work for low-income earners 
by reducing taxation in the middle bracket of the progressive income 
tax system. The government projects that the surplus in the public 
budget will drop from three percent of GDP in 2000 to two percent in 
2001, with a further drop to 1.7 percent projected for 2002. This is 
due to the generally lower economic activity and to new large tax 
deductions for pension funds' losses in 2001 on their stock holdings. 
The inflation rate has dropped from three percent in 2000 to 2.3 
percent in 2001. The inflation is mostly fueled domestically with wage 
inflation running at about four percent.
    Denmark welcomes foreign investment, and is home to close to 300 
subsidiaries of U.S. companies. From 1997 through 1999, U.S. direct 
investment in Denmark almost quintupled to some $11.2 billion (at 
market value using the current DKK/$ exchange rate). Most of the 
increase in U.S. direct investment has been in the form of acquisitions 
of Danish IT and telecom companies. Denmark also welcomes foreign firms 
focused on doing business in the former East Bloc countries. In that 
respect, Denmark has a number of preferential joint venture investment 
and investment guarantee programs and also makes available Danish and 
EU grants for improving the environment in those countries. The 
American Chamber of Commerce in Denmark was established in 1999 and a 
number of leading Danish and American firms are members of the Danish-
American Business Forum, which aims at promoting direct investment and 
exchanges of know-how.
    Denmark's opt-out of the European Monetary Union's (EMU) third 
phase (establishment of a joint EU currency and relinquishment of 
jurisdiction over monetary policy) was maintained in a referendum on 
September 28, 2000, when 53.2 percent of the voters rejected Danish 
participation. Several years are likely to pass before a Danish 
Government will test this opt-out again, although Denmark's economic 
performance is likely to continue to meet the established convergence 
criteria for participating in the EMU's third phase.
2. Exchange Rate Policy
    Denmark is a member of the European Monetary System (EMS) and its 
Exchange Rate Mechanism (ERM). From the early 1980s until 1999, the 
Government linked the krone closely to the German mark through the ERM, 
and beginning January 1, 1999, (through the ERM2) to the euro. In 
August 2001, the trade-weighted value of the krone was 2.1 percentage 
points higher than in August 2000, due mostly to the krone's 
appreciation against the Swedish krone and the yen. In the first eight 
months of 2001 compared with the same period in 2000, the krone dropped 
some six percent against the dollar (from DKK 7.83 to DKK 8.35 to 
$1.00). Despite this increase in the dollar rate, the krone-value of 
U.S. exports to Denmark (as measured by the Danish Bureau of 
Statistics) in the first seven months of 2001 rose some 10 percent. In 
the same period, Danish exports to the United States benefited from the 
high dollar and increased close to 30 percent in krone-value. The 
development in U.S. exports to Denmark indicates that U.S. exports to 
Denmark in 2000 had reached a base level less sensitive to dollar rises
3. Structural Policies
    Danish price policies are based on market forces. The Government's 
Competition Agency regulates entities with the ability to fix prices 
because of their market dominance. Denmark, during 1997, changed its 
competition legislation from the former ``control'' principle to the 
internationally recognized ``prohibition'' principle. The law was 
expanded in late summer 2000 to include ``merger control.'' Since 1998, 
the Competition Agency has made raids on some 40 companies and in all 
but one or two found proof of anti-trust violations.
    The highest marginal individual income tax rate, including the 
gross labor market contribution ``tax,'' is about 64 percent, and 
applies to taxable earnings exceeding some $37,600 (2001). Foreign 
executives, earning more than $65,000 annually and foreign researchers 
working in Denmark on a contract may for a period of up to three years 
benefit from more lenient income taxation, a flat 33 percent tax on 
gross income. Danish employers are almost alone in the EU in paying 
virtually no non-wage compensation. The government pays most sick leave 
and unemployment insurance costs. Employees pay their contribution to 
unemployment insurance out of their wages, while a large part of 
unemployment benefits is financed from general revenues.
    The Danish United States Value-Added Tax (VAT), at 25 percent, is 
the highest in the EU. As VAT revenues constitute more than one-quarter 
of total central government revenues, a reduction would have severe 
budgetary consequences. The government therefore has no plans to reduce 
the VAT, and hopes that EU VAT rate harmonization will raise the VAT 
rates of other EU countries. Environmental taxes are increasingly being 
imposed on industry (with some roll-back for anti-pollution efforts) 
and on consumers. The corporate tax rate is at present 30 percent and 
favorable depreciation rules and other deductions exist.
4. Debt Management Policies
    Except for 1998, Denmark has had a balance of payments surplus 
since 1990. Consequently, foreign debt gradually fell from over 40 
percent of GDP in 1990 to some 17 percent at the end of 2000. With a 
projected surplus of more than $5 billion on the balance of payments in 
2001, the foreign debt's share of GDP is projected to fall to some 13 
percent. Net interest payments on the foreign debt in 2000 cost Denmark 
some four percent of its goods and services export earnings. Moody's 
Investors Service and Standard and Poor's give the public domestic debt 
their highest ratings, Aaa and AAA, respectively. For the public 
foreign debt, their ratings are Aaa and AA+.
    From 1999 to 2000, the net foreign debt (public and private) 
increased by some $5 billion to $27 billion, mostly due to a drop in 
the value of foreign stocks held by Danes. At the end of 2000, the 
public sector foreign debt, including foreign exchange reserves and 
krone-denominated government bonds held by foreigners, totaled $22 
billion and the private sector foreign debt $5 billion.
    During 2000, the central government debt denominated in foreign 
currencies dropped five percent to $10.5 billion, of which 93 percent 
was denominated in euros (and none in U.S. dollars). The central 
government foreign debt has an average term of some two years.
    Denmark's central government budget deficits are not monetized, and 
the Danish monetary policy is aimed at maintaining a fixed krone in 
relation to the euro. Monetary policy is pursued through the Danish 
Central Bank (Danmarks Nationalbank) which sets the day-to-day interest 
rate on financial sector entities' current account deposits in the 
Central Bank and/or offer 14-day transactions where the entities either 
borrow in the Central Bank against collateral in securities or buy 
government deposit certificates. Under normal circumstances, there are 
no limitations on the liquidity. The Central Bank closely follows and 
adjusts Danish interest rates in response to European Central Bank 
interest rate adjustments. The Danish discount rate as of October 5, 
2001, stood at 3.75 percent. The Central Bank's lending rate stood at 
4.10 percent, down 1.5 percentage points from late September 2000.
5. Significant Barriers to U.S. Exports
    Within the European Union, the European Commission has authority 
for developing most aspects of EU-wide external trade policy, and most 
trade barriers faced by U.S. exporters in EU member states are the 
result of common EU policies. Such trade barriers include: the import, 
sale and distribution of bananas; restrictions on wine exports; local 
(EU) content requirements in the audiovisual sector; standards and 
certification requirements (including those related to aircraft and 
consumer products); product approvals and other restrictions on 
agricultural biotechnology products; sanitary and phytosanitary 
restrictions (including a ban on import of hormone-treated beef); 
export subsidies in the aerospace and shipbuilding industries; and 
trade preferences granted by the EU to various third countries. A more 
detailed discussion of these and other barriers can be found in the 
country report for the European Union.
    Denmark imposes few restrictions on import of goods and services or 
on investment. Denmark generally adheres to GATT/WTO codes and EU 
legislation that impact on trade and investment. U.S. industrial 
product exporters face no special Danish import restrictions or 
licensing requirements. Agricultural goods must compete with domestic 
production, protected under the EU's Common Agricultural Policy.
    Denmark provides national and, in most cases, nondiscriminatory 
treatment to all foreign investment. Ownership restrictions apply only 
in a few sectors: hydrocarbon exploration, which usually requires 
limited government participation, but not on a ``carried-interest'' 
basis; arms production, non-Danes may hold a maximum of 40 percent of 
equity and 20 percent of voting rights; aircraft, non-EU citizens or 
airlines may not directly own or exercise control over aircraft 
registered in Denmark; and ships registered in the Danish International 
Ships Register, a Danish legal entity or physical person must own a 
significant share, about 20 percent, and exercise significant control 
over the ship, or the ship must be on bareboat charter to a Danish 
firm.
    Danish law provides a reciprocity test for foreign direct 
investment in the financial sector, but that has not been an obstacle 
to U.S. investment. While no U.S. banks are directly represented in 
Denmark, a number of U.S. financial entities operate in Denmark through 
subsidiaries in other European countries, including Citicorp (through 
its UK subsidiary), GE Capital Equipment Finance (through Sweden), and 
Ford Credit Europe (through the UK).
    The Government of Denmark liberalized Danish telecommunications 
services in 1997; however, the network, i.e., the raw copper, remained 
controlled by the formerly government-owned Tele Danmark A/S (now known 
as TDC). The large U.S. company SBC Communications (formerly Ameritech) 
holds a controlling interest, 42 percent, of TDC. Access for other 
telecom operators to the raw copper opened in 1999. Sonofon, a 
Norwegian Telenor-controlled cellular mobile telephone network with 
U.S. Bell South participation, competes with TDC in that area. A number 
of foreign operators, including Swedish Telia and French Orange, are 
making strong inroads into the Danish market, which increases 
competition. The Danish Government on September 20, 2001, awarded 3-G 
(UMTS) licenses to four companies, TDC, Telia, Orange, and the Hong 
Kong based HI3G, at a price of $117 million per license.
    Danish government procurement practices meet the requirements of 
the WTO Agreement on Government Procurement (GPA) and EU public 
procurement legislation. Denmark has implemented all EU government 
procurement directives. A 1993 administrative note advised the Danish 
central and local governments of the EU/U.S. agreement on reciprocal 
access to certain public procurement.
    In compliance with EU rules, the government and its entities apply 
environmental and energy criteria on an equal basis with other terms 
(price, quality and delivery) in procurement of goods and services. 
This may eventually restrict U.S. companies' ability to compete in the 
Danish public procurement market. For example, the EU ``Ecolabel,'' the 
EU ``Ecoaudit'' and the Nordic ``Swan Label'' requirements may be 
difficult for some U.S. companies to meet. In addition, local 
governments to an increasing extent apply ``social'' criteria in their 
procurement, e.g., that companies employ welfare recipients in less 
demanding jobs. The Danish government uses offsets only in connection 
with military purchases not covered by the GATT/WTO code and EU 
legislation. Denmark has no ``Buy Danish'' laws.
    Denmark recently finalized a regulation, which will phase out 
certain industrial greenhouse gases, including hydrofluorocarbons 
(HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). The 
Danish government will phase out import, sale, and use of these gases 
and new products containing them beginning in 2002, with a complete ban 
in effect by January 1, 2006. There are exemptions for certain 
products, including small refrigerating systems containing HFCs, 
medical aerosol sprays, vaccine coolers, and lab equipment, and all 
production for export is exempt. However, specific exemptions are 
temporary in nature (e.g., ``allowed until further notice''). The 
phase-out is part of Denmark's Climate Change strategy, which also 
includes a tax on these gases and products. The U.S. air-conditioning 
and refrigeration industry has complained about the Danish policy, 
saying that it doesn't focus on emissions management, nor does it 
consider the energy efficiency of their products. The regulation has 
also been criticized for exempting exports.
    The Danish government uses offsets only in connection with military 
purchases not covered by the GATT/WTO code and EU legislation. Denmark 
has no ``Buy Danish'' laws.
    There is no record of any U.S. firm complaining about Danish 
customs procedures. Denmark has an effective, modern, and swift customs 
administration.
    U.S. firms resident in Denmark generally receive national treatment 
regarding access to Danish R&D programs. In some programs, however, 
Denmark requires cooperation with a Danish company. There is no record 
of any complaints by U.S. companies in this area.
6. Export Subsidies Policies
    EU agricultural export subsidies to Denmark totaled $374 million in 
2000, about 10 percent of the value of Danish agricultural exports 
including export subsidies to non-EU countries. Danish government 
support for agricultural export promotion programs is insignificant. 
Denmark has limited direct subsidies for its non-agricultural exports 
except for shipbuilding which, until the end of 2000, benefited from a 
general EU-wide subsidy of nine percent of the contract value. Denmark 
opposes resumption of EU shipbuilding subsidies and would rather see an 
eventual update of the 1994 OECD agreement and subsequent ratification 
by the world's leading shipbuilding nations, including the United 
States. The former shipbuilding subsidies have not prevented the 
closure of many of Denmark's shipbuilders in the face of increased and 
(allegedly unfairly) low-priced production in the Republic of Korea and 
elsewhere.
    The government does not directly subsidize exports by small and 
medium size companies. Denmark does, however, have support programs 
that indirectly assist exports through promotions abroad, establishment 
of export networks for small and medium-sized companies, research and 
development, and regional development.
    Denmark also has a well-functioning export credit and insurance 
system. In its foreign development assistance, Denmark, as a general 
rule, requires that 50 percent of all bilateral assistance be used for 
Danish-produced goods and services. These programs apply equally to 
foreign firms that produce in and export from Denmark.
7. Protection of U.S. Intellectual Property
    Denmark is a party to and enforces a large number of international 
conventions and treaties concerning protection of intellectual property 
rights, including the WTO Agreement on Trade-Related Aspects of 
Intellectual Property Rights (the TRIPS Agreement).
    Patents: Denmark is a member of the World Intellectual Property 
Organization, and adheres to the Paris Convention for the Protection of 
Industrial Property, the Patent Cooperation Treaty, the Strasbourg 
Convention and the Budapest Convention. Denmark has ratified the 
European Patent Convention and the EU Patent Convention.
    Trademarks: Denmark is a party to the 1957 Nice Arrangement and to 
this arrangement's 1967 revision. Denmark has implemented the EU 
trademark directive aimed at harmonizing EU member countries' 
legislation. Denmark strongly supports efforts to establish an EU-wide 
trademark system. Following a European Court decision in 1998 that 
``regional trademark consumption'' applies within the EU, Denmark 
stopped use of the ``global consumption principle.'' Denmark has 
enacted legislation implementing EU regulations for the protection of 
the topography of semiconductor products, which also extends protection 
to legal U.S. persons.
    Copyrights: Denmark is a party to the 1886 Berne Convention and its 
subsequent revisions, the 1952 Universal Copyright Convention and its 
1971 revision, the 1961 International Convention for the Protection of 
Performers, and the 1971 Convention for the Producers of Phonograms. 
There is little piracy in Denmark of music CDs or audio or video 
cassettes. However, computer software piracy is more widespread and 
estimated at over $100 million annually. Piracy of other intellectual 
property, including books, appears limited. There is no evidence of 
Danish import or export of pirated products.
    New Technologies: There are no reports of possible infringement of 
new technologies.
    Impact on U.S. Trade with Denmark: In mid-2000, the quasi-official 
Danish copyright collecting agency Copydan entered an agreement with 
the private U.S. Copyright Clearance Center providing for reciprocal 
reimbursement of royalty payments for photocopying of copyrighted 
works. In addition, Denmark in 2001 introduced new legislation which 
resolved a long-standing TRIPS Article 50 issue with the United States 
and which is expected to significantly reduce computer software piracy, 
particularly by private companies. Also in 2001, Denmark introduced a 
new levy on blank music CDs, the proceeds of which will be shared with 
U.S. rightholders in a way similar to the present, but naturally 
declining in value, levy on blank audio tapes.
8. Worker Rights
    a. The Right of Association: Workers in Denmark have the right to 
associate freely, and all, except those in essential services and civil 
servants, have the right to strike. Approximately 80 percent of Danish 
wage earners belong to unions. Trade unions operate free of government 
interference. Trade unions are an essential factor in political life 
and represent their members effectively. During 2000, only 124,800 
workdays were lost due to labor conflicts. This compares with the 3.2 
million workdays lost in 1998 in connection with the spring 1998 labor 
contract negotiations (see 8.b below). Greenland and the Faroe Islands 
have the same respect for worker rights, including full freedom of 
association, as Denmark.
    b. The Right to Organize and Bargain Collectively: Workers and 
employers acknowledge each other's right to organize. Collective 
bargaining is widespread. Danish law prohibits antiunion discrimination 
by employers against union members, and there are mechanisms to resolve 
disputes. Salaries, benefits, and working conditions are agreed in 
negotiations between the various employers' associations and their 
union counterparts and present contracts range in length from two to 
four years. If negotiations fail, a National Conciliation Board 
mediates, and its proposal is voted on by both management and labor. If 
the proposal is turned down, the government may force a legislated 
solution (usually based upon the mediator's proposal). In 1998, for 
example, failure to reach agreement resulted in a conflict in the 
industry sector, which lasted 11 days before the government intervened 
with legislation. In 2000, the mediator's proposal for new four-year 
contracts in the industrial area won broad approval. In 2001, contracts 
in the agricultural industry were agreed to between management and 
labor. In case of a disagreement during the life of a contract, the 
issue may be referred to the Labor Court. Decisions of that court are 
binding. Labor contracts that result from collective bargaining are, as 
a general rule, also used as guidelines in the non-union sector.
    Labor relations in the non-EU parts of Denmark (Greenland and the 
Faroe Islands) are generally conducted in the same manner as in 
Denmark.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited and does not exist in Denmark.
    d. Minimum Age for Employment of Children: The minimum age for 
full-time employment is 15 years. Denmark has implemented EU Council 
Directive 94/33/EU, which tightened Danish employment rules for those 
under 18 years of age, and set a minimum of 13 years of age for any 
type of work. The law is enforced by the Danish Working Environment 
Service (DWES), an autonomous arm of the Ministry of Labor. Danish 
export industries do not use child labor.
    e. Acceptable Conditions of Work: There is no legally mandated work 
week or national minimum wage. The work week set by labor contracts is 
37 hours. The lowest wage in any national labor agreement at present is 
equal to about $9.50 per hour. Danish law provides for five weeks of 
paid vacation each year. However, the most recent private and public 
sector contract agreements provide for five extra holidays to be phased 
in not later than 2003. Danish law also prescribes conditions of work, 
including safety and health; duties of employers, supervisors, and 
employees; work performance; rest periods and days off; medical 
examinations; and maternity leave. The DWES ensures compliance with 
workplace legislation. Danish law provides for government-funded 
parental and educational leave programs.
    Similar conditions, except for leave programs, are found in 
Greenland and the Faroe Islands, but in these areas the workweek is 40 
hours. Unemployment benefits in Greenland are either contained in labor 
contract agreements or come from the general social security system. A 
general unemployment insurance system in the Faroe Islands has been in 
force since 1992. Sick pay and maternity pay, as in Denmark, fall under 
the social security system.
    f. Rights in Sectors with U.S. Investment: Worker rights in those 
goods-producing sectors in which U.S. capital is invested do not differ 
from the conditions in other sectors.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  1,099
Total Manufacturing.........  ...........  2,340
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          (\1\)        .............................
   Products.
  Primary & Fabricated        28           .............................
   Metals.
  Industrial Machinery and    (\1\)        .............................
   Equipment.
  Electric & Electronic       487          .............................
   Equipment.
  Transportation Equipment..  -13          .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  619
Banking.....................  ...........  (\2\)
Finance/Insurance/Real        ...........  1,278
 Estate.
Services....................  ...........  111
Other Industries............  ...........  171
    Total All Industries....  ...........  5,618
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
\2\ Less than $500,000 (+/-).
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                FINLAND


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000        2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP (at factor cost) \10\.      128.4       121.4   \1\ 123.2
  Real GDP Growth (pct).............        4.2         5.7     \1\ 2.7
  GDP by Sector:
    Agriculture, Forestry and               4.2         3.8     \1\ 3.8
     Logging........................
    Manufacturing, Construction,           34.3        34.2    \1\ 33.5
     Mining and Quarrying...........
    Electricity, Gas and Water              2.3         1.9     \1\ 2.1
     Supply.........................
    Services........................       69.9        65.5    \1\ 68.0
    Taxes on products less subsidies       17.7        15.9    \1\ 15.8
  Per Capita GDP (US$) \9\..........     24,830      23,432   \1\ 23,747
  Labor Force (000s)................      2,557       2,589   \1\ 2,603
  Unemployment Rate (pct)...........       10.2         9.8     \1\ 9.0
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        6.6         0.0   \2\ -0.02
  Consumer Price Inflation..........        1.2         3.4     \3\ 3.0
  Exchange Rate (FIM/US$ annual            5.58        6.45    \4\ 6.67
   average).........................
 
Balance of Payments and Trade:
  Total Exports FOB.................       41.7        45.5     \5\24.5
    Exports to United States........        3.3         3.4     \5\ 2.0
  Total Imports CIF.................       31.5        33.8    \5\ 18.4
    Imports from United States......        2.5         2.4     \5\ 1.2
  Trade Balance.....................       10.2        11.7     \5\ 6.1
    Balance with United States......        0.8         0.9     \5\ 0.8
  External Public Debt..............      -20.9       -39.4    \6\ -5.5
  Fiscal Surplus/GDP (pct) \7\......        1.9         6.9     \1\ 4.1
  Debt Service Payments/GDP (pct)           3.0         3.3     \1\ 3.1
   \8\..............................
  Gold and Foreign Exchange Reserves        8.4         8.9     \9\ 8.4
  Aid from United States............        N/A         N/A         N/A
  Aid from All Other Sources........        N/A         N/A         N/A
------------------------------------------------------------------------
\1\ Estimate, Ministry of Finance. September 2001.
\2\ Bank of Finland, August 2000-August 2001.
\3\ Bank of Finland, January-August 2001.
\4\ Bank of Finland, January-July 2001 average.
\5\ Board of Customs, January-July 2001.
\6\ Bank of Finland, January-June 2001.
\7\ Net financing requirement, percent of GDP.
\8\ General government interest expenditures.
\9\ Bank of Finland, May 2001.
\10\ Declines in Nominal and Per Capita GDP (despite positive growth
  rates) are due to the depreciating value of the Finnish Mark.


1. General Policy Framework
    Fueled by the booming Nokia-led electronics industry, Finland has 
been amongst the fastest growing economies in the European Union (EU) 
with GDP growth averaging 4.8 percent per annum since 1994. Finland's 
membership in the EU, Finland joined on January 1, 1995, also helped 
spur structural changes in key economic sectors. Unemployment, at 9.8 
percent in 2000, however, still remains above the EU average.
    A key factor in Finland's recovery from its deep recession of the 
early 1990's was the strong growth in output in the manufacturing 
industry deriving largely from the success of telecommunications 
equipment exports. In 2000, exports accounted for more than 40 percent 
of Finland's overall output. However, weaker international demand has 
affected exports and production in the forest and electronics 
industries, and the latter part of 2001 looks bleak for the export 
industry. After seven successive years of robust growth, total output 
leveled off in early 2001. Over the January-July 2001 period, total 
output grew by 1.6 percent on 2000. The volume of Finland's total 
output fell for the third month in a row, off one percent year-on-year 
in July 2001. In July 2001, Ministry of Finance slashed its forecast 
for 2001 GDP growth by a full percentage point to 2.7 percent and 
lowered its 2002 estimate to 2.5 percent, due to global economic 
slowdown and the decline in exports, which is beginning to affect 
industrial production. The Ministry of Finance's next GDP growth 
estimate is scheduled for early November 2001, and is expected to be 
significantly lower, reflecting a continued global economic slowdown, 
exacerbated in part by the September 11 terrorist attacks on the United 
States.
    In 2000, the central government's finances reached a surplus for 
the first time since 1990, and rose to 3.5 percent of GDP. After strong 
growth in 2000, the surplus in central government finances is estimated 
to decrease considerably this year, especially since business 
performance is slackening and receipts from corporate income taxes are 
falling. Inflation reached a rate of 3.4 percent in 2000, becoming one 
of the highest in the euro zone. This can be explained mainly by higher 
oil prices, but price increases in housing and the depreciation of the 
euro has also played a role. The rise in consumer prices slowed down to 
the euro area average in summer 2001, and with economic growth 
receding, inflationary pressures are estimated to continue easing in 
the latter half of 2001. The consumer price index is expected to rise 
by an average of 2.7 percent in 2001.
    State debt is still at a high level, although it dropped from FIM 
404.6 ($72.5) billion in 1999 to FIM 376.9 ($ 58.4) billion in 2000, 
and is expected to total FIM 357.9 ($ 53.6) billion in 2001. The debt-
to-GDP ratio is expected to fall only slightly. The overall government 
debt ratio (ratio of EMU debt to GDP) is predicted to fall from 44.1 
percent in 2000 to 42 percent by the end of 2001.
    In 2000, Finland's tax ratio (gross wage-earner taxation, including 
compulsory employment pension contributions, relative to GDP) was up to 
46.9 percent from 46.2 percent in 1999. A decrease is expected in 2001 
(44 percent) and in 2002 (42.6 percent) due to scheduled tax cuts.
    Key fiscal policy aims in the government program are to freeze 
central government spending at the level of the 1999 budget in real 
terms, to maintain central government finances in surplus (around 1.5 
percent of GDP), and to clearly reduce state debt.
    Finnish economic policy is determined to a large extent by 
consultation and coordination within the EU. EU membership, for 
example, has resulted in new competition legislation that has helped 
reduce the cartelized nature of many Finnish industries. Legislation 
that took effect at the beginning of 1993 liberalizing foreign 
investment restrictions has helped spur an increase in foreign 
portfolio investment and hence has contributed to the 
internationalization of large Finnish companies. In 2000, capital 
flowed out of the country in the net amount of FIM 55 ($ 8.5) billion, 
almost equivalent to the surplus in the current account. The net 
outflow of foreign direct investment was FIM 65 ($10.1) billion. 
Investment outflows continue to exceed direct investment in Finland. 
Finland is hoping to capitalize on its location and expertise to serve 
as a gateway for foreign investors in the newly independent states of 
the former Soviet Union and the Baltic states. This effort had scored 
only limited success with relatively few foreign firms establishing 
production and warehousing facilities in eastern Finland, close to the 
major Russian markets. The Russian financial crisis in 1998 caused a 
significant slowdown in gateway activity, although there are now signs 
of recovery.
2. Exchange Rate Policy
    The European Commission reported on March 25, 1998 that 11 EU 
member countries, one of them Finland, were ready for the Economic and 
Monetary Union (EMU) and met the conditions to adopt the single 
currency (euro). The bank notes and coins of the single currency will 
be put into circulation January 1, 2002. Both euros and Finnish marks 
will be in dual circulation for a period of two months, January 1-
February 28, 2002.
    As of January 1, 1999, Finland joined the third stage of the EMU. 
This third and final stage of EMU commenced with the irrevocable 
locking of the exchange rates of the eleven currencies participating in 
the euro area and with the conduct of a single monetary policy under 
the responsibility of the European Central Bank (ECB). The Finnish mark 
was pegged to the euro at 5.9457.
3. Structural Policies
    Finland replaced its turnover tax with a Value-Added Tax (VAT) in 
June 1994. While the change has had little effect on overall revenues, 
several sectors not previously taxed or taxed at a lower rate, 
including corporate and consumer services and construction, are now 
subject to the new VAT. The government has kept the basic VAT rate at 
the same level as the old turnover tax (22 percent). Legislation on VAT 
was harmonized with the European Union. Foodstuffs are taxed at a 17 
percent rate. Medicines, books, passenger transportation, 
accommodation, TV licenses, admission fees to cultural and 
entertainment events, cinema performances and use of sporting 
facilities are taxed at an eight percent rate. Services, including 
health care, education, insurance, newspaper and periodical 
subscriptions, and rentals are not subject to VAT.
    Agricultural and forestry products continue to be subject to 
different forms of non-VAT taxation. In 1995, a uniform tax rate of 28 
percent took effect on capital gains, which include dividends, rental 
income, insurance, savings, forestry income, and corporate profits. The 
sole exception was bank interest, on which the tax rate was increased 
from 20 to 25 percent at the beginning of 1994. The corporate and 
capital gain income tax rate was increased from 28 per cent to 29 per 
cent in January 2000.
    In March 1997, European Union commitments required the 
establishment of a tax border between the autonomously governed, but 
territorially Finnish, Aland Islands (Ahvenanmaa) and the rest of 
Finland. As a result, the trade of goods and services between the rest 
of Finland and Aland is now treated as if it were trade with a non-EU 
area. The trade effect of this treatment is minimal since the Aland 
Islands are part of the European Fair Trade Association tariff area.
    Liberalization of foreign investment has resulted in a strong 
revival of the Finnish stock market and greater corporate use of equity 
markets. It has also substantially increased the percentage of foreign 
ownership of many of Finland's leading companies, and is the preferred 
vehicle for privatization or partial privatization of companies with 
significant state ownership. The previous center-conservative 
government initiated a program aimed at privatizing as many state-owned 
companies as the Finnish parliament would permit and the market could 
absorb. The present government agrees that state ownership at its 
present level is no longer necessary in manufacturing, energy 
production, and telecommunications operations. The basic strategy has 
been to reduce the government's stake through the issuance of stock, 
rather than by selling off companies to individual investors, and to 
treat each company as an individual case.
    The only major divestment of state share holdings in 2000 was the 
sale of three percent of the stake in the telecom service provider 
Sonera, which brought in FIM 2.02 billion ($30 million) at a time when 
the firm's stock was near its historic high of 90 Euros. The Finnish 
state has share holdings in 46 major companies, at present it controls 
four stock exchange companies: Sonera; the national airline Finnair; 
the energy group Fortum; and the chemical group Kemira. The Finnish 
state has decided to sell its majority stake of 56 percent in chemical 
industry group Kemira to Swedish Industri Kapital, and in return will 
receive a minority holding of 34 percent in a new, as yet nameless, 
company. However, in order for the deal to be finalized, the Finnish 
parliament must authorize the state to sell all of its holdings in 
Kemira. The wholly state owned Finnish defense group Patria, has 
decided to sell 27 percent of its shares to European Aeronautic Defense 
and Space Company (EADS) and become a strategic partner with EADS.
    In May 2000, the government reached a decision-in-principle on the 
use of state sales proceeds between 2000 and 2003. The government will 
boost basic funding for universities and will commit to certain 
projects aimed at bolstering long-term growth prospects. The rest of 
privatization proceeds already realized or forthcoming will be 
allocated to debt redemption.
    State aid to industry was at a relatively high level in Finland in 
the first years of the 1990s. This was mainly due to the severe 
depression that Finland experienced at that time. It should be noted, 
however, that even in those years Finland was no more generous in 
subsidizing its manufacturing companies than the EU countries on 
average. The government has begun to reduce subsidies in line with the 
need for greater fiscal discipline and it is the government's policy to 
continue this trend. All companies registered in Finland have access to 
government assistance under special development programs. Foreign-owned 
companies are eligible for government incentives on an equal footing 
with Finnish-owned companies. Government incentive programs are mainly 
aimed at investment in areas deemed to be in need of development.
    The system of direct business subsidies was streamlined in early 
2001, so that existing subsidy programs were merged. The system of 
business subsidies consists of three forms of subsidies, i.e. 
investment aid, development aid for small and medium sized enterprises, 
and aid for the operating environment of businesses.
    The Finnish economy faces two major challenges. First, the 
competition the Finnish economy is facing is clearly increasing and 
spreading to new sectors threatening traditionally sheltered sectors of 
the economy. Second, with the population aging, labor supply is set to 
decline in the next decade, correspondingly weakening the financial 
base by increasing outlays for social security and pensions. Finland's 
priority during next few years is to rise the effective retirement age. 
These challenges highlight the importance of fiscal restraint and 
structural reforms. There is a growing need in general government 
finances to concentrate on relieving the expenditure pressure caused by 
the aging population and on reducing the central government debt ratio. 
The key task in structural policy is to secure prerequisites for 
employment-oriented stable economic growth. To counter the economic 
slowdown, Finland plans to lower taxes and increase investment.
4. Debt Management Policies
    Under the government's EMU convergence program, the gross 
government debt is projected to drop from 44.1 percent of GDP in 2000 
to 42 percent by the end of 2001.
    In May 2001, Standards & Poor's announced it would keep its rating 
of Finnish long term government bonds at their second-best rating, AA+ 
, adding that the outlook on long term ratings remains positive. In 
September 2001, Moody's rated Finnish long-term government bonds at its 
best rating, AAA. In November 2000, Fitch IBCA confirmed the rating of 
Finnish long-term government bonds as AAA, short-term foreign currency 
at F1, and rated the outlook as stable.
    Finland is an active participant in the Paris Club, the London 
Club, and the Group of 24, providing assistance to East and Central 
Europe and the independent states of the former Soviet Union. It has 
been a member of the IMF since 1948. Finland's development cooperation 
programs channel assistance via international organizations and 
bilaterally to a number of African, Asian, and Latin American 
countries. In response to budgetary constraints and changing 
priorities, Finland has reduced foreign assistance from 0.78 percent of 
GDP in 1991 to 0.31 percent of GDP in 2000. The Finnish government 
estimates foreign assistance will rise to 0.34 percent of GDP in 2001 
and 0.341 percent of GDP in 2002.
5. Significant Barriers to U.S. Exports
    Finland became a member of the EU in 1995, and as a result has had 
to adopt the EU's tariff schedules. The agricultural sector remains the 
most heavily protected area of the Finnish economy, with the bulk of 
official subsidies in this sector. The amount of these subsidies is 
determined by the difference between intervention and world prices for 
agricultural products. Since joining the EU, the difference between 
these two prices has decreased for most agricultural items, resulting 
in lower, albeit still significant, subsidy levels.
    In mid-1996 the Finnish government's inter-ministerial licensing 
authority began to oppose within the EU some U.S. company applications 
for commercialization of genetically modified organisms (GMOs) such as 
insect-resistant corn. The Ministry for Environment appears to favor 
mandatory consumer-oriented labeling of GMOs. Other ministries are more 
supportive of GMO commercialization. The government continues to take a 
case-by-case approach to GMO-related issues.
    The Finnish service sector is undergoing considerable 
liberalization in connection with EU membership. Legislation 
implementing EU insurance directives has gone into effect. Finland has 
exceptions to the EU directives on insurance covering medical and drug 
malpractice and nuclear power supply. Restrictions placed on statutory 
labor pension funds, which are administered by insurance companies, 
will in effect require that such companies establish an office in 
Finland. In most cases, such restrictions will cover workers' 
compensation insurance companies as well. Auto insurance companies will 
not be required to establish a representative office, but will have to 
have a claims representative in Finland.
    1995 was the first year of fully open competition in the 
telecommunications sector in Finland. The Telecommunication Act of 
August 1996 allows both network operators and service operators to use 
competitor telecommunication networks in exchange for reasonable 
compensation. The Telecommunication Act was replaced by the 
Telecommunications Market Act of 1997, which improved the opportunities 
of telecommunication operators to profitably lease each other's 
telecommunications connections. Entry to the sector was also made 
easier by eliminating a licensing requirement to construct a fixed-
telephone network. Only mobile-telephone networks are still subject to 
license. The number of mobile telephones exceeded the number of fixed-
line connections beginning in 1998. Finland's mobile phone penetration 
is 75 percent, with 3.9 million mobile phones in use. As of September 
2001, Finns have been able to make local calls using the operator of 
their choice by using a five -digit code at the beginning of the 
number. It is also possible to choose which operator is used when 
calling from a fixed-line phone to a mobile subscriber.
    Finland was the first country to grant licenses for third-
generation mobile-phone networks. In March 1999, four 
telecommunications companies were granted licenses to construct 3G 
mobile networks in Finland. Contrary to many other European countries, 
licenses were free of charge and granted to the most qualified 
applicants, rather than by auction. Licenses were technology-neutral, 
but all four licensees are expected to use the European UMTS 
technology. 3G mobile operations are expected to be launched by the 
beginning of 2002. The world's first 3G WCDMA voice call on the 
commercial 3G PP (3rd generation partnership program) system was made 
between Nokia laboratories in Oulu and Salo, Finland, in mid August 
2001.
    The government requires that the Finnish broadcasting company 
devote a ``sufficient'' amount of broadcasting time to domestic 
production, although in practical terms this has not resulted in 
discrimination against foreign-produced programs. Finland has adopted 
EU broadcasting directives, which recommend a 51 percent European 
programming target ``where practicable'' for non-news and sports 
programming. Finland does not intend to impose specific quotas and has 
voiced its opposition to such measures in the EU.
    With the end of the Restriction Act in January 1993, Finland 
removed most restrictions on foreign ownership of property in Finland. 
Only minor restrictions remained, such as requirements to obtain 
permission of the local government in order to purchase a vacation home 
in Finland. But even restrictions such as this were abolished in 
January 2000, bringing Finland fully in line with EU norms.
    Foreigners residing outside of the EEA who wish to carry on trade 
as private entrepreneurs or as partners in a Finnish limited or general 
partnership must get a trade permit from the Ministry of Trade and 
Industry (MTI) before starting a business in Finland. Additionally, at 
least one-half of the founders of a limited company must reside in the 
EEA unless the MTI grants an exemption.
    Normally Finland requires that a labor-market test be conducted 
before allowing a foreigner from outside the EEA to work in Finland. 
The purpose of the test is to determine whether or not a Finn could 
undertake the same work. However, foreign intra-corporate transferees 
who are business executives or managers are not subject to the labor-
market test. This standard does not apply to company specialists, who 
must prove that they possess knowledge at an advanced level of 
expertise or are otherwise privy to proprietary company business 
information.
    Finland is a signatory to the WTO Government Procurement Agreement 
and has a good record in enforcing its requirements. In excluded 
sectors, particularly defense, counter trade is actively practiced. 
Finland is purchasing fighter aircraft and associated equipment valued 
at $3.35 billion from U.S. suppliers. One hundred percent offsets are 
required, as a condition of sale, by the year 2005.
    Finland has in most cases completed the process of harmonizing its 
technical standards to EU norms. It has streamlined customs procedures 
and harmonized its practices with those of the EU.
    Within the European Union, the European Commission has authority 
for developing most aspects of EU-wide external trade policy, and most 
trade barriers faced by U.S. exporters in EU member states are the 
result of common EU policies. Such trade barriers include: the import, 
sale and distribution of bananas; restrictions on wine exports; local 
(EU) content requirements in the audiovisual sector; standards and 
certification requirements (including those related to aircraft and 
consumer products); product approvals and other restrictions on 
agricultural biotechnology products; sanitary and phytosanitary 
restrictions (including a ban on import of hormone-treated beef); 
export subsidies in the aerospace and shipbuilding industries; and 
trade preferences granted by the EU to various third countries. A more 
detailed discussion of these and other barriers can be found in the 
country report for the European Union.
6. Export Subsidies Policies
    The only significant Finnish direct export subsidies are for 
agricultural products, such as grain, meat, butter, cheese and eggs, as 
well as for some processed agricultural products. Finland has advocated 
worldwide elimination of shipbuilding subsidies through the OECD 
Shipbuilding Agreement. The EU decided that payment of shipyard 
subsidies would end at the end of year 2000. According to Finland's 
year 2000 supplementary budget, subsidies were granted on ship orders 
up to a total value of FIM 6 billion ($930 million) and the industry 
granted an appropriation of FIM 140 ($21.7) million, in order to secure 
the competitiveness of the shipbuilding industry. Since spring 1996, 
Finnish shipyards have received 1.1 billion FIM ($169 million) in 
direct production support. The EU ministers discussed in mid July 2001 
a plan to reintroduce subsidies to their shipbuilders as a ``temporary 
support mechanism'' to protect the industry from South Korean 
competition, which was said to benefit from unfair subsidies.
7. Protection of U.S. Intellectual Property
    The Finnish legal system protects property rights, including 
intellectual property, and Finland adheres to numerous international 
agreements and organizations concerning intellectual property. Patent 
rights are consistent with the international standards. In 1996, 
Finland joined the European Patent Convention (EPC).
    Finland is a member of the World Intellectual Property 
Organization, and participates primarily via its membership in the EU. 
The idea of protection of intellectual property is well developed. For 
example, the incidence of software piracy is lower than in the United 
States, and by some measures (e.g., BSA), is the lowest in the world.
    Finland has been a member of the Paris Convention for the 
Protection of Industrial Property since 1921, the Berne Convention for 
the Protection of Literary and Artistic Works since 1928, and the Rome 
International Convention for the Protection of Performers, Producers of 
Phonograms and Broadcasting Organizations since 1983.
    Finland is a member of the WTO. It shares the U.S. overall 
philosophy on an open and fair international trading system. Its 
government procurement practices have been consistent with EU policies 
and there has been no pattern of discrimination against U.S. 
businesses.
    Information on copying and copyright infringement is provided by 
several copyright holder interest organizations such as the Copyright 
Information and Anti-Piracy Center. The Business Software Alliance 
(BSA), a worldwide software anti-piracy organization, began operations 
in Finland in January 1994. According to a BSA survey, the rate of 
software piracy in Finland dropped from 67 percent in 1994 to 30 
percent in 2000. Retail software revenue lost to piracy amounted to $ 
46.5 million in 2000, BSA reported.
    The Finnish Copyright Act, which traditionally grants protection to 
authors, performing artists, record producers, broadcasting 
organizations, and catalog producers, is being amended to comply with 
EU directives. As part of this harmonization, the period of copyright 
protection was extended from 50 years to 70 years. Protection for data 
base producers (currently a part of catalog producer rights) will be 
defined consistent with EU practice. The Finnish Copyright Act provides 
for sanctions ranging from fines to imprisonment for up to two years. 
Search and seizure are authorized in the case of criminal piracy, as is 
the forfeiture of financial gains. The Copyright Act has covered 
computer software since 1991.
8. Worker Rights
    a. The Right of Association: The constitution provides for the 
rights of trade unions to organize, to assemble peacefully, and to 
strike, and the government respects these provisions. During 1993-2000, 
the percentage of workers who were organized dropped from 85 to 79 
percent, mainly due to the fact that people between 35 and 44 years of 
age have started to lose their interest in labor unions, a recent study 
found. All unions are independent of the government and political 
parties. The law grants public-sector employees the right to strike, 
with some exceptions for provision of essential services. In 2000, 
there were 96 strikes and 2001 will be dominated by a five months long 
doctors' strike, which started in May and ended in September 2001, and 
proved to be expensive for everyone. Despite this major strike, 
statistics show that the number of working days lost to strikes has 
been reduced significantly over the past thirty years. Trade unions 
freely affiliate with international bodies.
    b. The Right to Organize and Bargain Collectively: The law provides 
for the right to organize and bargain collectively. Collective 
bargaining agreements are usually based on incomes policy agreements 
between employee and employer central organizations and the government. 
The law protects workers against antiunion discrimination. Complaint 
resolution is governed by collective bargaining agreements as well as 
labor law, both of which are adequately enforced. There are no export 
processing zones.
    c. Prohibition of Forced or Compulsory Labor: The Constitution 
prohibits forced or compulsory labor, and this prohibition is honored 
in practice. The law prohibits forced and bonded labor by children and 
adults, and such practices do not exist. The government enforces these 
prohibitions effectively.
    d. Minimum Age for Employment of Children: Youths under 16 years of 
age cannot work more than six hours a day or at night, and education is 
compulsory for children from 7 to 16 years of age. The Labor Ministry 
enforces child labor regulations. There are virtually no complaints of 
exploitation of children in the work force.
    e. Acceptable Conditions of Work: There is no legislated minimum 
wage, but the law requires all employers, including non-unionized ones, 
to meet the minimum wages agreed to in collective bargaining agreements 
in the respective industrial sectors. The legal workweek consists of 
five days not exceeding 40 hours. Employees working in shifts or during 
the weekend are entitled to a 24-hour rest period during the week. The 
law is effectively enforced as a minimum, and many workers enjoy even 
stronger benefits through effectively enforced collective bargaining 
agreements. The government sets occupational health and safety 
standards, and the Labor Ministry effectively enforces them. Workers 
can refuse dangerous work situations without risk of penalty.
    f. Rights in Sectors with U.S. Investment: Conditions in all goods-
producing sectors in which U.S. capital is invested do not differ from 
those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  81
Total Manufacturing.........  ...........  672
  Food & Kindred Products...  7            .............................
  Chemicals & Allied          355          .............................
   Products.
  Primary & Fabricated        59           .............................
   Metals.
  Industrial Machinery and    77           .............................
   Equipment.
  Electric & Electronic       61           .............................
   Equipment.
  Transportation Equipment..  77           .............................
  Other Manufacturing.......  36           .............................
Wholesale Trade.............  ...........  328
Banking.....................  ...........  20
Finance/Insurance/Real        ...........  -3
 Estate.
Services....................  ...........  68
Other Industries............  ...........  114
    Total All Industries....  ...........  1,279
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 FRANCE


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                       1999       2000     \1\ 2001(est)
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.....................     1,383      1,237         1,314
  Real GDP Growth (pct)...........       3.0        3.1           2.3
  GDP by Sector (previous year         1,318      1,187           N/A
   prices): \2\...................
    Agriculture...................        39         34           N/A
    Manufacturing.................       331        302           N/A
    Services......................       680        613           N/A
    Government and Non-Profit            268        239           N/A
     Services.....................
  Per Capita GDP (US$)............    23,858     21,355        21,900
  Labor Force (000s)..............    25,983     26,155        25,839
  Unemployment Rate (pct average).      11.0        9.5           8.9
 
Money and Prices (annual
 percentage growth):
  Money Supply Growth (M3) \3\....       7.3        7.6           7.9
  Consumer Price Inflation               0.5        1.7           1.7
   (average)......................
  Exchange Rate (FF/US$--annual          6.2        7.1           7.3
   average).......................
 
Balance of Payments and Trade:
  Total Exports FOB \4\...........       302        299           296
    Exports to United States \4\..        23         26            24
  Total Imports CIF \4\...........       285        308           301
    Imports from United States \4\        26         29            25
  Trade Balance CIF/FOB...........        17         -9            -5
    Balance with United States \4\        -3         -3            -1
  External Public Debt............       N/A        N/A           N/A
  Fiscal Deficit/GDP (pct)........       1.6        1.4           1.4
  Current Account \4\.............        37         21            19
  Current Account Surplus/GDP            2.6        1.6           1.5
   (pct)..........................
  Debt Service Payments/GDP (pct).       N/A        N/A           N/A
  Gold and Foreign Exchange               71         68            72
   Reserves \5\...................
  Aid from United States..........       N/A        N/A           N/A
  Aid from All Other Sources......       N/A        N/A           N/A
------------------------------------------------------------------------
\1\ Embassy estimates based on published French government data unless
  otherwise indicated.
\2\ GDP excludes Value Added Tax (VAT) and other taxes.
\3\ 2001 figure reflects M3 as of July.
\4\ 2001 estimate based on seven months.
\5\ 2001 estimate based on eight months.


1. General Policy Framework
    France is the fifth largest industrial economy in the world, with 
annual gross domestic product about 15 percent that of the United 
States. France is the fourth largest importer and exporter in the 
global market, and is a world leader in high technology, defense, 
agricultural products, and services. France is the ninth largest 
trading partner of the United States and the third largest in Europe 
(after Germany and the United Kingdom). According to U.S. Department of 
Commerce data, U.S. merchandise exports to France increased by 7.3 
percent to $20 billion in 2000, while merchandise imports from France 
grew 15.8 percent to $30 billion, according to the same source. This 
resulted in a U.S. merchandise trade deficit with France of about $7 
billion. French trade data account differently for re-exports and 
transshipments via neighboring European countries, and as a result 
France reports a trade deficit of about $1 billion with the United 
States in 2000. Trade in services is expanding rapidly. In 2000, it 
added about $2 billion to the total volume of trade between the United 
States and France. The United States and France are the world's top two 
exporters in several important sectors, including defense products, 
agricultural goods, and services.
    France's annual real GDP growth rate in 2001 is projected to be 
about 2.3 percent according to French government estimates, following 
growth of 3.1 percent in 2000. Economic growth in the first two 
quarters of 2001 was disappointing. Growth has been domestic-demand led 
as export growth has been significantly affected by the economic 
slowdown in the United States and among France's European partners, 
notably Germany. The employment picture improved early in the year, but 
deteriorated during summer. The unemployment rate decreased to 8.7 
percent in February, remained at this level until May, and began to 
rise in June, reaching 9 percent in August. Based on government 
projections the general government budget deficit should stay unchanged 
at 1.4 percent of GDP in 2001 compared with 2000. Current indicators, 
notably business and household confidence, show the economic situation 
deteriorating. International factors, notably effects of September 11 
attacks in the United States, are now creating further downward risks 
to GDP growth. Independent French economists forecast annual growth at 
about 2 percent in 2001 and to 1.8 percent in 2002.
    Considerable progress has been made over the past decade on 
structural reforms. However, additional efforts will be necessary for 
France to achieve its full economic potential. Prime areas for reforms 
identified by international organizations include continued reductions 
of taxes and government spending, increased flexibility of labor 
markets, and further deregulation of goods' and services' sectors. 
Further progress will depend on policies adopted by the government 
formed after legislative and presidential elections next year, and its 
room for maneuver.
    With exports and imports of goods and services each accounting for 
about 25 percent of GDP, France's open external sector is a vital part 
of its economy. The government has encouraged the development of new 
markets for French products and investors, particularly in Asia and 
Latin America. It especially seeks to promote exports by small and 
medium-sized firms. Foreign investment, both inward and outward, also 
plays a very important role in the French economy, helping generate 
employment and growth. With about 20 percent of the total, U.S. 
investment accounts for the largest share of foreign direct investment 
in France. Restrictions on non-EU investors apply only in sensitive 
sectors, such as telecommunications, agriculture, defense, and 
aviation, and are generally applied on a reciprocal basis.
    France offers a variety of financial incentives to foreign 
investors and its investment promotion agency, DATAR, provides 
extensive assistance to potential investors in France.
2. Exchange Rate Policies
    France adopted the euro currency as of January 1, 1999. 
Responsibility for exchange rate policy is shared between national 
finance ministries and the European Central Bank.
3. Structural Policies
    Over the past decade, the government has made efforts to reduce its 
role in economic life through fiscal reform, privatization, and the 
implementation of European Union liberalization and deregulation 
directives. This has produced a slow but progressive opening of 
telecommunications and electricity markets, and re-structuring of 
state-owned defense firms. Nevertheless, the government remains deeply 
involved in the functioning of the economy through national and local 
budgets, remaining state holdings of major corporations, and extensive 
regulation of labor, goods, and services markets. This can sometimes 
result in a lack of transparency in the making of decisions that affect 
U.S. and other firms. While U.S. and foreign companies often cite 
concerns about relatively high tax rates on business, particularly 
payroll and social security taxes, state action does not discriminate 
against foreign firms or investments. There are very few, generally 
clearly defined exceptions, such as those notified to the OECD under 
its investment codes.
4. Debt Management Policies
    The budget deficit is financed through the sale of government bonds 
at weekly and monthly auctions. A member of the group of leading 
financial nations, France participates actively in the International 
Monetary Fund, the World Bank, and the Paris Club. France is a leading 
donor nation and is actively involved in development issues, 
particularly with its former colonies in north and sub-saharan Africa. 
France has also been a leading proponent of debt reduction and relief 
for the highly indebted poor countries.
5. Significant Barriers to U.S. Exports
    In general, European Union agreements and practices determine 
France's trade policies. Within the European Union, the European 
Commission has authority for developing most aspects of EU-wide 
external trade policy, and most trade barriers faced by U.S. exporters 
in EU member states are the result of common EU policies. Such trade 
barriers include: the import, sale and distribution of bananas; 
restrictions on wine exports; local (EU) content requirements in the 
audiovisual sector; standards and certification requirements (including 
those related to aircraft and consumer products); product approvals and 
other restrictions on agricultural biotechnology products; sanitary and 
phytosanitary restrictions (including a ban on import of hormone-
treated beef); export subsidies in the aerospace and shipbuilding 
industries; and trade preferences granted by the EU to various third 
countries. A more detailed discussion of these and other barriers can 
be found in the country report for the European Union.
    Although in most cases France follows import regulations as 
prescribed by the Common Agricultural Policy and various EU directives, 
there are a number of agricultural products for which France implements 
unilateral restrictions (irrespective of EU policy) that affect U.S. 
exports. For instance, French decrees and regulations currently 
prohibit the import of the following agricultural products: poultry, 
meat and egg products from countries (including the United States) that 
use certain feed compounds; products made with enriched flour; exotic 
meats (e.g., ostrich, emu and alligator); and live crawfish unless 
authorized by special agreement. Current regulations discriminate 
against imports of bovine semen and embryos from the United States by 
strictly controlling their marketing in France.
    The French government established a policy on applications of 
biotechnology in agriculture and food production in 1998 that has 
restricted imports and production of goods made with transgenic 
materials or processes, principally corn, soybeans, and derived 
products.
    France's implementation of the EU broadcast directive limits U.S. 
and other non-EU audiovisual exports. France strictly applies quotas 
mandating local content. A 40 percent domestic content requirement for 
music, excluding classical music and jazz, broadcast by French radio 
stations mandated by a 1994 law was lowered to 35 percent in 2000. 
Continuation and growth of a strong French motion picture and 
television industry is a government priority.
    Government efforts to balance the national social security health 
care budget continue to target (via price/volume agreements, reduced 
reimbursement rates, taxes, and slow approvals) products brought to the 
market by research-based pharmaceutical firms and health equipment 
firms. The U.S. health equipment and research-based pharmaceutical 
industries continue to press the French government for more 
transparency in government regulation.
    In October 2001, the United States and France amended the 1998 
bilateral civil aviation agreement to conform with all the necessary 
elements of an open skies agreement.
6. Export Subsidies Policy
    France is a party to the OECD guidelines on the arrangement for 
export credits, which includes provisions regarding the concessionality 
of foreign aid. The French government has increased its export 
promotion efforts, particularly to the emerging markets in East Asia 
and Latin America. These efforts include providing information and 
other services to potential exporters, particularly small and medium-
sized enterprises.
    Support of the agricultural sector is a key government priority. 
Government support of agricultural production comes mainly from the 
budget of the European Union under the Common Agricultural Policy. 
French government subsidies to agricultural production are primarily 
indirect. France strongly supports continued EU export subsidies. The 
government offers indirect assistance to French farmers in many forms, 
such as easy credit terms, start-up funds, and retirement funds.
    In April 2001, the European Union notified the United States that 
France and several other Member States had made commitments to provide 
development support for the Airbus A380 (super-jumbo) aircraft. In 
addition, the French government and local authorities in Toulouse 
announced in 2001 publicly funded projects valued at more than $270 
million to provide infrastructure improvements related to the 
production of the A380 at Airbus facilities in France.
7. Protection of U.S. Intellectual Property
    As a major innovator, France has a strong stake in defending 
intellectual property rights worldwide. Under the French intellectual 
property rights regime, industrial property is protected by patents and 
trademarks, while literary/artistic property and software are protected 
by the French civil law system of ``authors rights'' and ``neighboring 
rights.'' France is a party to the Berne Convention on copyrights, the 
Paris Convention on industrial property, the Universal Copyright 
Convention, the Patent Cooperation Treaty, and the Madrid Convention on 
trademarks. U.S. nationals are entitled to receive the same protection 
of industrial property rights in France as French nationals. In 
addition, U.S. nationals have a ``priority period'' after filing an 
application for a U.S. patent during which to file a corresponding 
application in France.
8. Worker Rights
    a. The Right of Association: The French Constitution guarantees the 
right of workers to form unions. Although union membership has declined 
to less than ten percent of the workforce, the institutional role of 
organized labor in France is far greater than its numerical strength. 
The government regularly consults labor leaders on economic and social 
issues, and joint work councils play an important role even in 
industries that are only marginally unionized.
    b. The Right to Organize and Bargain Collectively: The principle of 
free collective bargaining was established after World War II, and 
subsequent amendments to labor laws encourage collective bargaining at 
national, regional, local, and plant levels.
    c. Prohibition of Forced or Compulsory Labor: French law prohibits 
antiunion discrimination and forced or compulsory labor.
    d. Minimum Age for Employment of Children: With a few minor 
exceptions for those enrolled in apprenticeship programs or working in 
the entertainment industry, children under the age of 16 may not be 
employed in France.
    e. Acceptable Conditions of Work: The current minimum wage is FF 
42.02 per hour (about $5.60). Since February 2000, the legal workweek 
is 35 hours for firms of 20 or more workers. Firms with fewer than 20 
workers will have until January 2002 to reduce their workweek to 35 
hours. In general terms, French labor legislation and practice 
(including occupational safety and health standards) are fully 
comparable to those in other industrialized market economies. France 
has three small export processing zones, where regular French labor law 
and wage scales apply.
    f. Rights in Sectors with U.S. Investment: Labor law and practice 
are uniform throughout all industries, including those sectors and 
industries with significant U.S. investment.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  1,010
Total Manufacturing.........  ...........  16,515
  Food & Kindred Products...  3,387        .............................
  Chemicals & Allied          3,742        .............................
   Products.
  Primary & Fabricated        3,800        .............................
   Metals.
  Industrial Machinery and    1,330        .............................
   Equipment.
  Electric & Electronic       1,242        .............................
   Equipment.
  Transportation Equipment..  594          .............................
  Other Manufacturing.......  2,419        .............................
Wholesale Trade.............  ...........  2,558
Banking.....................  ...........  1,823
Finance/Insurance/Real        ...........  9,964
 Estate.
Services....................  ...........  5,537
Other Industries............  ...........  1,680
    Total All Industries....  ...........  39,087
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                GERMANY


                       Key Economic Indicators \1\
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000        2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................     2113.5      1868.6      1867.5
  Real GDP Growth (pct, y/y) \3\....        1.8         3.0         0.8
  GDP by Sector (pct):
    Agriculture.....................        6.4         5.8         5.8
    Manufacturing...................       22.8        23.3        23.3
    Services........................       70.8        70.9        70.9
    Government \4\..................       48.2        47.3        47.4
  Per Capita GDP (US$)..............   25,711.7    22,732.4    22,719.0
  Labor Force (000s) \5\............     38,838      40,204      41,155
  Unemployment Rate (pct) \5\.......       10.5         9.6         9.4
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        5.2         4.1         4.0
  Consumer Price Inflation..........        0.6         2.0         2.5
  Exchange Rate (DM/US$--annual            1.84        2.04        2.02
   average).........................
 
Balance of Payments and Trade:
  Total Exports FOB.................      546.1       549.1       252.7
    Exports to United States........       55.2        58.5        30.5
  Total Imports CIF.................      475.9       495.3       288.3
    Imports from United States......       26.8        29.4        16.0
  Trade Balance.....................       69.8        53.8        71.1
    Balance with United States......       28.4        29.1        14.5
  External Public Debt \6\..........     1287.9      1122.4      1121.4
  Fiscal Deficit/GDP (pct)..........       -1.4         1.5        -2.4
  Current Account Deficit/GDP (pct).       -0.2        -1.7        -1.1
  Debt Service Payments/GDP (pct)...        3.5         3.3         3.3
  Gold and Foreign Exchange Reserves       99.6        90.2        84.9
  Aid from United States............          0           0           0
  Aid from All Other Sources........          0           0           0
------------------------------------------------------------------------
\1\ 2001 figures are all estimates based on the first half, except GDP
  and fiscal balance, which are full-year forecasts.
\2\ At 1995 prices.
\3\ Percentage change in real GDP calculated in DM, national currency,
  at 1995 prices.
\4\ Also included in services category.
\5\ 2001 figures based on eight-month average and Embassy forecast.
\6\ Total outstanding public debt


1. General Policy Framework
    Germany's economy is the world's third largest, with total output 
equivalent to just under two trillion in 2000 (in nominal terms). Real 
GDP growth, which had dropped to 1.5 percent in 1999, rose to 3 percent 
in 2000. Most German public and private forecasters are now estimating 
growth to be less than one percent for 2001. Germany is highly 
integrated into the global economy: just as the slowdown in German 
growth in late 1998 and early 1999 resulted mainly from adverse 
international economic conditions, so the cyclical upswing in 2000 was 
based on the recovery in global conditions. The current decline in 
global economic indicators is reflected in German figures for 2001. 
Inflation remains very low, partly as a result of deregulation in the 
electricity and telecommunications sectors, and after rising in 2000 
with the impact of higher oil prices, is now once again receding.
    The German ``social market'' economy is organized on market 
principles and affords its citizenry a secure social safety net 
characterized by generous unemployment, health, educational and basic 
welfare benefits. Differences in economic growth between western 
Germany, faster, and ``new'' states in the east, slower, have at least 
temporarily complicated economic convergence between the two regions, a 
key national objective. In addition, unemployment rates remain high, 
appearing to stagnate at almost four million people unemployed 
nationwide. Germany's total population stands at just over 82 million. 
Unemployment is about twice as high in eastern Germany as in the west.
    Increased government outlays associated with German unification put 
pressure on fiscal policy during the 1990s. The country's generous 
social welfare system was extended as a whole to eastern Germany, and 
the government further committed itself to raising eastern German 
production potential via public investment and generous subsidies to 
attract private investment. However, overall unit labor costs in 
eastern Germany are still quite high, as productivity growth has lagged 
behind wage increases. This process led to the higher unemployment in 
the east and resulted in a sharp increase in federal unemployment 
compensation costs. As a result, western Germany continues to transfer 
substantial sums to eastern Germany (more than DM 140 billion annually, 
or roughly four percent of German GDP). These transfers contributed to 
the dramatic ballooning of public sector deficits and borrowing since 
1990 and thus to the need for the current government's belt-tightening 
measures.
    Top policy priorities of the coalition government elected in 
September 1998 are to lower unemployment and reduce the fiscal deficit. 
The government has sought the cooperation of unions and employers in 
fashioning its labor market policies. Consensus has been possible on 
some issues, such as wage restraint in centrally negotiated agreements, 
expansion of training opportunities for young people entering the work 
force and improved opportunities for older workers. However, on many 
other issues there has been no consensus and the government has pursued 
its own course of action, generally favoring pro union policies. 
Deficit reduction efforts have focused on federal spending restraint; 
one-off revenues, such as the auction of Universal Modem 
Telecommunications System (UMTS) wireless telephone licenses in 2000, 
have been applied toward debt reduction. The government has introduced 
tax reforms, which reduce corporate income tax rates and close 
loopholes, extending relief to families, and raise energy taxes for 
environmental reasons. The government has made progress in 1999 and 
2000 in reducing the budget deficit. Strong economic growth and 
favorable demographic trends combined in 2000 to increase employment 
significantly and to reduce unemployment rates. However, unemployment 
has climbed steadily in 2001, due primarily to slower economic growth, 
and unemployment is again at politically sensitive levels. Slower 
growth and the fiscal actions taken in response to the September 11 
terrorist attack in the United States are expected to lead to an 
increase in the budget deficit. Germany employs a broad range of fiscal 
and market tools in financing public expenditures.
2. Exchange Rate Policies
    On January 1, 1999, the euro was introduced in Germany and the 
Deutsche Mark was fixed at 1.96 to the euro. Euro notes and coins will 
be introduced on January 1, 2002, but many non-cash transactions are 
already denominated in the new currency. All monetary and exchange 
policies are now handled by the European Central Bank.
3. Structural Policies
    Since the end of the Second World War, German economic policy has 
been based on a ``social-market'' model which is characterized by a 
substantially higher level of direct government participation in the 
economy than in the United States. In addition, an extensive regulatory 
framework, which covers most facets of retail trade, service licensing 
and employment conditions, has worked to limit market entry by not only 
foreign firms, but also German entrepreneurs.
    Although the continuation of the ``social market'' model remains 
the goal of all mainstream political parties, changes resulting from 
the integration of the German economy with those of its EU partners, 
the impact of German unification, pressure from globalization on 
traditional manufacturing industries, and high unemployment have forced 
a rethinking of the German post-war economic consensus. A number of 
structural impediments to the growth and diversification of the German 
economy have been identified by the OECD. These can be broadly grouped 
as follows:

          (1) a rigid labor market;
          (2) a regulatory system that discourages new market entrants; 
        and
          (3) high marginal tax rates and high contribution rates 
        mandatory for social insurance programs.

    While many Germans value these structural features for their 
presumed benefits in terms of social security and relative equality, 
the public debate has focused on their compatibility with the desired 
economic growth and employment levels identified by the German 
government and Germany's competitiveness as a location for business and 
investment. The government, as noted, has pursued tax reform, but the 
significant tax overlay encompassing federal, state and local taxes 
remains one of the highest tax burdens in the world. The government has 
not undertaken formal structural reform of the labor market and has 
instituted some changes that make the market more inflexible. At the 
same time, however, gradual changes are taking place in the labor 
market as a result of competitive forces, new technologies, new forms 
of employment, and the process of negotiations between unions and 
employers, at both the firm and the industry level.
    In recent years, the government has reorganized the German Federal 
Railroad, the Federal Post (Deutsche Post) and Deutsche Telecom (DT). 
The initial public offering for Deutsche Post (DP) was in November 2000 
and was quite successful. The government opened the telecommunications 
network to competition on January 1, 1998, the date when its new 
Regulatory Authority for Telecommunications and Post (RegTP) began 
operation. From that time on, the government has reduced its ownership 
share of the former monopoly DT to 42 percent in several tranches. 
Since then, however, U.S. telecommunications trade associations also 
filed complaints with USTR (in February 1999, 2000, and 2001) under 
Section 1377 of the Omnibus Trade and Competitiveness Act of 1988, 
charging that Germany was not fully complying with the WTO's Basic 
Telecommunications Agreement. USTR continues to monitor the German 
market. The federal government also has sold its remaining stake in the 
national airline, Lufthansa. The EU gas liberalization directive went 
into effect on August 10, 2000, but the negotiated third-party access 
agreement (TPA) agreed to by market participants in Germany has not 
produced the degree of competion that followed the electricity 
deregulation in April 1998. Paralleling German government efforts to 
deregulate the economy, the European Commission is expected to continue 
to pressure member states to reduce barriers to trade in services 
within the Community. U.S. firms, especially those with operations 
located in several European Union member states, should benefit from 
such market integration efforts over the long term.
    Despite the real progress in market liberalization in recent years, 
lack of competition and overregulation remain a problem and drive up 
business costs. Services subject to excessive regulation and/or market 
access restrictions continue to affect the telecommunications, posts, 
utilities, banking and insurance sectors. For example, after RegTP 
issued numerous procompetitive decisions in 1998-1999, competitors to 
incumbent DT charged that decisions have since then tended to favor DT, 
or at least have not promoted competition. The state's large ownership 
share of DT, however, has made the government very sensitive to the DT 
share price, which plummeted in 2001 to below its initial offering 
price after reaching its high in March 2000. In 2001, the government 
extended the DP monopoly on letter service until 2007, having earlier 
undertaken to lift the monopoly on January 1, 2003. DP lost two cases 
brought by competitors before EU competition authorities in 2001. On 
the positive side of the structural reform ledger, the German 
government in 2001 also repealed two important laws dating to the 1930s 
that severely limited price competition.
4. Debt Management Policies
    As a condition of its participation in the European Monetary Union, 
the government was required to reduce its accumulated public debt and 
lower its debt/GDP ratio. Germany is also subject to a constitutional 
limitation to hold its new net borrowing at or below the amount 
invested in public sector infrastructure. Current policies seek to 
achieve a balanced (consolidated) budget by 2004.
    Germany has recorded persistent current account deficits since 1991 
due to a drop in the country's traditionally strong trade surplus, 
related in part to strong consumer demand in eastern Germany. These 
deficits have been small, however, in relation to GDP. The strong 
deterioration of the services balance in recent years, caused 
principally by German tourism expenditures abroad, has contributed to 
the current account deficits. Nonetheless, Germany continues to 
maintain a surplus in the merchandise trade balance.
5. Significant Barriers to U.S. Exports
    Germany is the United States' fifth-largest export market and its 
fifth-largest source of imports. In 2000, U.S. exports to Germany 
totaled $29.4 billion, while U.S. imports from Germany reached $58.5 
billion. Other than EU-imposed restrictions, there are few formal 
barriers to U.S. trade and investment in Germany. Ingrained consumer 
behavior and strong domestic players prevailing in German product and 
services markets often make gaining market share a difficult challenge, 
especially for new-to-market companies.
    Import Licenses: Germany has abolished almost all national import 
quotas. The country, however, enforces import license requirements 
placed on some products by the European Union.
    Services Barriers: Foreign access to Germany's insurance market is 
still limited to some degree. All telecommunications services have been 
fully open to competition since January 1998, when the EU's 
telecommunications market liberalization came into effect; great 
dynamism and intense competition characterize the long distance, but 
not local, market. Liberalization has opened up opportunities for U.S. 
telecommunications and internet service providers. Germany has no 
foreign ownership restrictions on telecommunications services. Germany 
has supported the ``safe harbor'' agreement of July 2000 that bridges 
different approaches to protection of personal data between the United 
States and the EU. A 1998 EU data privacy directive prohibits 
businesses from exporting ``personal information'' unless the receiving 
country has in place privacy protection that the EU deems adequate.
    Standards, Testing, Labeling, and Certification: Germany's 
regulations and bureaucratic procedures are complex and can prove to be 
a hurdle for U.S. exporters unfamiliar with the local environment. 
Overly complex government regulations offer, intentionally or not, 
local producers a degree of protection. EU health and safety standards, 
for example, can restrict market access for many U.S. products (e.g., 
genetically modified organisms and hormone-treated beef).
    Government Procurement: Germany's government procurement is 
nondiscriminatory and appears to comply with the GATT Agreement on 
Government Procurement. The German Public Procurement Reform Act, which 
establishes examining bodies that have the responsibility to review the 
awarding of public contracts and to investigate complaints pertaining 
to the procurement process, came into effect on January 1, 1999.
    Investment Barriers: Under the terms of the 1956 U.S.-FRG Treaty of 
Friendship, Commerce and Navigation, U.S. investors are afforded 
national treatment. The government and industry actively encourage 
foreign investment in Germany. As noted above, U.S. investors in 
recently privatized/deregulated sectors, such as postal services, 
telecommunications and energy, have encountered government activities 
that favor former monopolists. Beyond this, foreign companies with 
investment complaints in Germany generally list the same investment 
problems as domestic firms: high tax rates, expensive labor costs, and 
burdensome regulatory requirements.
    Customs Procedures: Administrative procedures at German ports of 
entry do not constitute a problem for U.S. suppliers.
    Within the European Union, the European Commission has authority 
for developing most aspects of EU-wide external trade policy, and most 
trade barriers faced by U.S. exporters in EU member states are the 
result of common EU policies. Such trade barriers include: the import, 
sale and distribution of bananas; restrictions on wine exports; local 
(EU) content requirements in the audiovisual sector; standards and 
certification requirements (including those related to aircraft and 
consumer products); product approvals and other restrictions on 
agricultural biotechnology products; sanitary and phytosanitary 
restrictions (including a ban on import of hormone-treated beef); 
export subsidies in the aerospace and shipbuilding industries; and 
trade preferences granted by the EU to various third countries. A more 
detailed discussion of these and other barriers can be found in the 
country report for the European Union.
6. Export Subsidies Policies
    Germany does not directly subsidize exports outside the European 
Union's framework for export subsidies for agricultural goods. 
Competitors have charged DP with cross subsidization to preserve its 
domestic market share and gain entry to and increase market share in 
third countries, including the United States. The European Commission 
in early 2001 ruled against DP on a formal antitrust complaint from a 
U.S. parcel delivery company for abusing its dominant position. The 
Commission, however, is continuing a major anti-trust investigation of 
state aids for DP, which has been underway since 1994.
    The German government is also providing a DM 2.5 billion loan on 
attractive terms to Airbus Germany for the development of the A 380 
airliner. Repayment is contingent on future sales of the airplane.
7. Protection of U.S. Intellectual Property
    Intellectual property is generally well protected in Germany. 
Germany is a member of the World Intellectual Property Organization, a 
party to the Berne Convention for the Protection of Artistic and 
Literary Works, the Paris Convention for the Protection of Industrial 
Property, the Universal Copyright Convention, the Geneva Phonograms 
Convention, the Patent Cooperation Treaty, the Brussels Satellite 
Convention, and the Treaty of Rome on Neighboring Rights. U.S. citizens 
and firms are entitled to national treatment in Germany, with certain 
exceptions. Germany's commitments under the intellectual property 
rights portions (TRIPS) of the Uruguay Round, implementation in 1993 of 
the EU's Software Copyright Directive, as well as an educational 
campaign by the software industry have helped address concerns from 
some U.S. firms about the level of software piracy.
8. Worker Rights
    a. The Right of Association: Article IX of the German Constitution 
guarantees full freedom of association. Worker rights to strike and 
employers' rights to lockout are also legally protected.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides for the right to organize and bargain collectively, and this 
right is widely exercised. Due to a well-developed system of autonomous 
contract negotiations, mediation is used infrequently. Basic wages and 
working conditions are negotiated at the industry level between trade 
unions and employer associations. Nonetheless, some firms, especially 
in eastern Germany, have refused to join employer associations, or have 
withdrawn from them, and then bargained independently with workers. In 
other cases, associations are turning a ``blind eye'' to firm-level 
negotiations. Likewise, some large firms in the west have withdrawn at 
least part of their workforce from the jurisdiction of the employers 
association, complaining of rigidities in the centralized negotiating 
system. Those no longer covered by centrally negotiated agreements have 
not, however, refused to bargain as individual enterprises. German law 
mandates a system of work councils with broad rights of 
``codetermination'' on some aspects of company policy and practice. In 
addition, German law provides for worker membership on supervisory 
boards of larger firms and those in particular industries. Thus many 
workers participate in the management of the enterprises in which they 
work. The law thoroughly protects workers against antiunion 
discrimination.
    c. Prohibition of Forced or Compulsory Labor: The German 
Constitution guarantees every German the right to choose his own 
occupation and prohibits forced labor, although some prisoners are 
required to work.
    d. Minimum Age for Employment of Children: German legislation 
generally bars child labor under age 15. There are exemptions for 
children employed on family farms, delivering newspapers or magazines, 
or involved in theater or sporting events.
    e. Acceptable Conditions of Work: There is no legislated or 
administratively determined minimum wage. Wages and salaries are set 
either by collective bargaining agreements between unions and employer 
federations, or by individual contracts. Covering about 90 percent of 
all wage and salary earners, the collective bargaining agreements set 
minimum pay rates and are legally enforceable. In most cases, these 
minimums provide an adequate standard of living for workers and their 
families.
    f. Rights in Sectors with U.S. Investment: The enforcement of 
German labor and social legislation is strict, and applies to all firms 
and activities, including those in which U.S. capital is invested. 
Employers are required to contribute to the various mandatory social 
insurance programs and belong to and support chambers of industry and 
commerce which organize the dual (school/work) system of vocational 
education.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  2,946
Total Manufacturing.........  ...........  26,801
  Food & Kindred Products...  467          .............................
  Chemicals & Allied          4,873        .............................
   Products.
  Primary & Fabricated        1,210        .............................
   Metals.
  Industrial Machinery and    6,063        .............................
   Equipment.
  Electric & Electronic       2,537        .............................
   Equipment.
  Transportation Equipment..  6,979        .............................
  Other Manufacturing.......  4,673        .............................
Wholesale Trade.............  ...........  3,215
Banking.....................  ...........  699
Finance/Insurance/Real        ...........  14,678
 Estate.
Services....................  ...........  2,729
Other Industries............  ...........  2,542
    Total All Industries....  ...........  53,610
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 GREECE


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                       1999         2000       \1\ 2001
------------------------------------------------------------------------
Income, Production and
 Employment:
  Nominal GDP \2\................   124,808.0    111,940.0    119,914.0
  Real GDP growth (pct) \3\......         3.3          4.3          4.5
  GDP by Sector: \4\
    Agriculture..................     8,928.0      7,545.0      7,685.0
    Manufacturing................    24,125.0     20,980.0     21,815.0
    Services.....................    81,280.0     74,535.0     78,760.0
      Of which:..................
        Government...............     8,050.0      7,235.0      7,545.0
  Per Capita GDP (US$)...........    11,848.4     10.618.6     11,350.9
  Labor Force (000s).............     4,434.8      4,461.4      4,488.1
  Unemployment Rate (pct)........        11.9         11.1         11.0
 
Money and Prices (annual
 percentage growth):
  Money Supply Growth (M4N Dec)..         5.5         10.4      \5\ 6.5
  Consumer Price Inflation.......         2.6          3.1          3.5
  Exchange Rate (DRS/US$ annual
   average):.....................
    Official.....................       305.6        365.4        375.0
    Parallel.....................         N/A          N/A          N/A
 
Balance of Payments and Trade:
  Total Exports FOB \6\..........    10,510.0     10,760.3     10,500.0
  Total Exports FOB \7\..........     8,546.9     10,201.3     10,700.0
    Exports to United States \8\.       563.1        591.4    \9\ 301.5
  Total Imports CIF \6\..........    28,422.0     28,501.3     28,500.0
  Total Imports CIF \7\..........    26,493.4     30,436.0     29,800.0
    Imports from United States          995.5      1,221.8    \9\ 692.5
     \8\.........................
  Trade Balance \6\..............   -17,912.0    -17,741.0    -18,000.0
  Trade Balance \7\..............   -17,946.5    -20,234.7    -19,100.0
    Balance with United States...       432.4        630.4    \9\ 391.0
  External Public Debt...........    33,600.0     27,045.0     24.990.0
  Fiscal Deficit/GDP (General             1.8          1.1   \10\ (- 0.5
   Government) (pct).............                                     )
  Debt Service (Public                   17.5         19.6         16.9
   Sector)Payments/GDP(pct)......
  Gold and Foreign Exchange          18,948.6     13,533.3   \11\ 7,000.
   Reserves......................                                     0
  Aid from United States.........         N/A          N/A          N/A
  Aid from All Other Sources.....         N/A          N/A          N/A
------------------------------------------------------------------------
\1\ 2001 figures are all estimates based on available data in October.
\2\ GDP at market prices.
\3\ Percentage changes calculated in local currency.
\4\ Factor cost.
\5\ M3. The monetary factor used in the Economic Monetary Union.
\6\ Merchandise Trade; National Statistical Service of Greece; Customs
  Data.
\7\ Trade; Bank of Greece data; on a settlement basis for 1999. The Bank
  of Greece data, especially those on exports, used to underestimate
  true trade figures since exporters were not obliged to deposit their
  export receipts in Greece. Effective 1999, the Bank of Greece has been
  implementing a new set of accounts to be in line with other EU central
  banks. The new data are based on the new system (resident/non-resident
  basis).
\8\ U.S. Department of Commerce. U.S. exports and general imports,
  customs value.
\9\ January-July 2001 data.
\10\ (-) denotes surplus.
\11\ Eurosystem reserves definition. Foreign exchange reserves do not
  include: (1) claims on non-euro area residents in euro (2) claims on
  euro area residents in foreign currency and euro, and (3) the
  contribution of the Bank of Greece to the ECD capital and foreign
  reserve assets.


1. General Policy Framework
    Greece, a member of the European Union (EU) since 1981, officially 
joined the EU Economic and Monetary Union (EMU) on January 1, 2001, and 
became a part of the EU single currency club. Its economy is segmented 
into the state sector, estimated at 40 percent of GDP, and the private 
sector, 60 percent of GDP. It has a population of 10.7 million and a 
workforce of about 4 million. Some of Greece's economic activity 
remains unrecorded. Estimates of how much of the economy remains 
unrecorded vary, due, at least in part, to deficient data collection. 
The moderate level of development of Greece's basic infrastructure, 
such as roads, rail, and telecommunications, reflects its middle-income 
status. Per capita GDP is $11,350, the lowest in the EU. However, with 
GDP growth well above the EU average, this gap is slowly closing.
    Services make up the largest and fastest growing sector of the 
Greek economy, accounting for about 65 percent of GDP (including 
government services). Tourism, shipping, trade, banking, 
transportation, communications, and construction are the largest 
service sub-sectors. Greece is an import-dependent country, importing 
substantially more than it exports. In 2000 imports were $28.5 billion, 
while exports were only $10.8 billion. A relatively small industrial 
base and lack of adequate investment in the past have restricted the 
export potential of the country. As a general trade profile, Greece 
exports primarily light manufactured and agricultural products, and 
imports more sophisticated manufactured goods. Tourism receipts, 
emigrant remittances, shipping receipts, and transfers from the EU form 
the core of Greece's invisible earnings. Greece's growth (4.5 percent 
projected in 2001) has greatly depended on EU financing the last 
decade. Greece has received about $20 billion for major infrastructure 
projects (road and rail networks, ports, airports, telecommunications, 
etc.) from the EU over the period 1994-99. Greece will get another EU 
structural funds package of about $24 billion for the period 2000-2006. 
Greece will also undertake a number of infrastructure projects to host 
the 2004 Summer Olympic Games.
    Greece joined the Economic and Monetary Union (EMU) as of January 
1, 2001, having met all the macroeconomic convergence criteria for 
participation in the EMU established by the Maastricht Treaty. This 
positive outcome was the result of the implementation of a six-year 
convergence program designed to meet EMU entry requirements. Greece's 
fiscal balance has improved due to higher tax revenues and greater 
fiscal discipline. A more effective tax collection system, abolition of 
numerous tax exemptions, and the imposition of additional taxes led to 
higher revenues. Expenditures rose slightly in real terms due to a 
small increase in the wage bill (public sector) and a higher increase 
in government subsidies and support to social insurance funds. Outlays 
for interest payments showed a small decline due to lower interest 
rates. Greece has managed to keep inflation close to the EU average, at 
around 3.6 percent for the first eight months of 2001. In 2000, the 
unemployment rate dropped to 11.1 percent from 11.9 percent in 1999 and 
is expected to drop further to 11 percent in 2001. By the end of 2000, 
as a result of a fiscal policy focused on expanding revenue collection, 
the government budget deficit to GDP ratio had fallen to 1.1 percent. 
According to preliminary data, the 2001 general government budget shows 
for the first time a surplus of 0.5 percent of GDP.
    Greece's large general government debt (102 percent of GDP or $119 
billion in 2000) stems to a great extent from government acquisition of 
failing enterprises and a deficit run public sector for many years. 
Greece's social security program has also been a major drain on public 
spending. Deficits are financed primarily through issuance of 
government securities. For 2001 the government expects a reduction of 
the debt to 98.9 percent of GDP. The government debt to GDP ratio is 
projected to decline further to 95.2 percent in 2002, 90.5 percent in 
2003 and 84 percent of GDP in 2004. Outlays for military procurement, 
the cost of 2004 Athens Olympic Games, and pressure from social 
insurance's rising obligations may make it increasingly difficult to 
meet these targets unless a comprehensive economic policy and necessary 
reforms are implemented.
    The Bank of Greece, Greece's central bank, is a member of the 
European Central Bank, which determines the monetary policy to be 
followed by the EU member countries participating in the EMU.
2. Exchange Rate Policy
    Greece's foreign exchange market is in line with EU rules on free 
movement of capital. As of January 1, 2001, when Greece joined the EMU, 
the drachma's central rate was set at 340.75 drachmas per euro.
3. Structural Policies
    Greece's structural policies need to conform to the provisions of 
the EU Single Market and the Maastricht Treaty on Economic and Monetary 
Union. Since Greece joined the Eurozone on January 1, 2001, it will 
have to undergo serious structural reform to sustain EMU convergence 
criteria. Toward this end, the Greek government has opened its 
telecommunications market and has plans to gradually liberalize its 
energy sector. In the energy field, the Greek energy market has entered 
a phase of deregulation. Since February 19, 2001, about 34 percent of 
eligible customers of middle and high-tension voltage may obtain their 
electricity from producers other than the state monopoly, the Public 
Power Corporation (PPC). To date, however, there is no other 
electricity supplier. The electricity market in Greece will have to be 
fully deregulated by the year 2005.
    The Greek government plans to privatize or sell minority stakes in 
public sector enterprises and organizations by the end of 2001. In 
accordance to this plan, at the end of June 2001 the government issued 
a bond loan convertible to about 10 percent of the stocks of the 
Hellenic Telecommunications Organization (OTE), which reduced 
government holding to 42 percent. The privatization plan also includes 
Hellenic Petroleum (23 percent currently traded in the market), Olympic 
Airways, Public Power Corporation, Natural Gas Corporation, Hellenic 
Aerospace Industry, the port operations in Piraeus and Thessaloniki, 
and the Agricultural Bank of Greece. Restructuring the operations of 
the public sector (i.e., elimination of unnecessary activities/
entities, changes in the labor and social insurance regimes) are also 
at the top of the Greek government's agenda.
    Pricing Policies: The only remaining price controls are on 
pharmaceuticals. The government can also set maximum prices for fuel 
and private school tuition fees, and has done so several times in the 
last several years.
    About one quarter of the goods and services included in the 
Consumer Price Index (CPI) are still produced by state-controlled 
companies. As a result, the government retains considerable indirect 
control over pricing. While this distorts resource allocations in the 
domestic economy, it does not directly inhibit U.S. imports (with the 
exception of pharmaceuticals).
    Tax Policies: Businesses complain about frequent changes in tax 
policies (there is a new tax law practically every year). The latest 
legislation was voted in Parliament in December 2000 and provides for 
tax relief measures including: gradual reduction of the top tax rate 
for personal income to 40 percent from the current 45 percent; gradual 
reduction of the tax on corporation profits from the current 40 to 37.5 
percent in 2001 and 35 percent in 2002; adjustment of the personal 
income tax scale to inflation every two years; higher tax rebates to 
large families; and lower taxes for new farmers.
4. Debt Management Policies
    Greece's ``General Government Debt'' (the Maastricht Treaty 
definition) is projected at $119 billion, or 98.9 percent of GDP 
(market prices) in 2001. External debt accounted for 24.2 percent of 
total government debt in 2000 and is projected to drop to 20.8 percent 
in 2001. Foreign debt does not affect Greece's ability to import U.S. 
goods and services.
    Greece has regularly serviced its debts and has generally good 
relations with commercial banks and international financial 
institutions. Greece is not a recipient of World Bank loans or 
International Monetary Fund programs. In 1985, and again in 1991, 
Greece received a balance of payments loan from the EU.
5. Significant Barriers to U.S. Exports
    Greece, a WTO member, has both EU-mandated and Greek government-
initiated trade barriers.
    Law: Greece maintains nationality-based restrictions on a number of 
professional and business services, including legal advice. These 
restrictions have been lifted in the recent years for EU citizens. As a 
result, U.S. companies often employ EU citizens.
    Accounting/Auditing: The transitional period for de-monopolization 
of the Greek audit industry officially ended on July 1, 1997. Numerous 
attempts to reserve a portion of the market for the former state audit 
monopoly during the transition period (1994-97) were blocked by the 
European Commission and peer review in the OECD. In November 1997, 
however, the Greek government issued a presidential decree that reduced 
the competitiveness of the multinational auditing firms. The decree 
established minimum fees for audits, and imposed restrictions on 
utilization of different types of personnel in audits. It also 
prohibited audit firms from doing multiple tasks for a client, thus 
raising the cost of audit work. The government has defended these 
regulations as necessary to ensure the quality and objectivity of 
audits. In practical effect, the decree constitutes a step back from 
deregulation of the industry.
    Aviation: Under the ``Open Skies'' aviation agreements that the 
United States has with most EU member states, there are no restrictions 
on bilateral routes, capacity or pricing. Greece is one of several 
member states without an Open Skies agreement, and where the U.S.-
Greece bilateral aviation agreement still contains some limitations.
    Motion Pictures: Greek film production is subsidized by a 12 
percent admissions tax on all motion pictures. Enforcement of Greek 
laws protecting audio-visual intellectual property rights for film, 
software, music, and books is problematic, but has improved in the last 
few years.
    Agricultural Products: Greek testing methods for Karnal bunt 
disease in U.S. wheat have served as a de facto ban on imports and 
transshipment of wheat for the last three years due to a high incidence 
of false positive results. The Ministry of Agriculture has recently 
agreed to procedures that will allow a resumption of transshipments 
through Greek ports to neighboring countries.
    Recently, Greece has not been responsive to applications for 
introduction of bioengineered (genetically modified) seeds for field 
tests despite support for such tests by Greek farmers.
    Investment Barriers: Greek authorities take into serious 
consideration local content and export performance when evaluating 
applications for tax and investment incentives. However, they are not 
mandatory prerequisites for approving investments.
    Greece, which restricted foreign and domestic private investment in 
public utilities (with the exception of cellular telephony and energy 
from renewable sources, e.g. wind and solar), has recently opened its 
telecommunications market and has plans to gradually liberalize its 
energy sector. Greece has been granted a derogation until January 1, 
2001, to open its voice telephony and the respective networks to other 
EU competitors. In the energy field, the Greek energy market has 
entered a phase of deregulation since February 19, 2001. The 
electricity market in Greece will have to be fully deregulated by the 
year 2005.
    U.S. and other non-EU investors receive less advantageous treatment 
than domestic or other EU investors in the banking, mining, maritime, 
and air transport sectors, and in broadcasting (these sectors were 
opened to EU citizens due to EU single market rules). There are also 
restrictions for non-EU investors on land purchases in border regions 
and certain islands (on national security grounds).
    Greek laws and regulations concerning government procurement 
nominally guarantee nondiscriminatory treatment for foreign suppliers. 
Officially, Greece also adheres to EU procurement policy, and Greece 
has adhered to the GATT Government Procurement Code since 1992. 
Nevertheless, many of the following problems still exist: occasional 
sole-sourcing (explained as extensions of previous contracts); loosely 
written specifications which are subject to varying interpretations; 
and allegiance of tender evaluators to technologies offered by 
longtime, traditional suppliers. Firms from other EU member states have 
had a better track record than U.S. firms in winning Greek government 
tenders. It has been noted that U.S. companies submitting joint 
proposals with European companies are more likely to succeed in winning 
a contract. The real impact of Greece's ``buy national'' policy is felt 
in the government's offset policy (mostly for purchases of defense 
items) where local content, joint ventures, and other technology 
transfers are required.
6. Export Subsidies Policies
    The government does not use national subsidies to support exports. 
However, some agricultural products (most notably cotton, olive oil, 
tobacco, cereals, canned peaches, and certain other fruits and 
vegetables) receive production subsidies from the EU which enhance 
their export competitiveness.
7. Protection of U.S. Intellectual Property
    Greek laws extend protection of intellectual property rights to 
both foreign and Greek nationals. Greece is a party to the Paris 
Convention for the Protection of Industrial Property, the European 
Patent Organization, the World Intellectual Property Organization, the 
Washington Patent Cooperation Treaty, and the Berne Copyright 
Convention. As a member of the EU, Greece has harmonized its 
legislation with EU rules and regulations. The WTO TRIPS agreement was 
incorporated into Greek legislation as of February 28, 1995 (Law 2290/
95).
    Despite Greece's legal framework for (Law 2121 of 1993 on 
copyrights and Law 2328 of 1995 on media) and voiced commitment to 
copyright protection, Greece has been on the Special 301 ``Priority 
Watch List'' from 1994 to April 2001. The U.S. government launched a 
WTO TRIPS non-enforcement challenge and consultations under WTO 
auspices were started in June 1998. The United States, Greece and the 
European Union observed that estimated levels of television piracy in 
Greece have fallen significantly since 1996. According to statistics 
from the company for protection of audio-visual works, losses from 
audio-visual piracy have fallen from 60 million U.S. dollars in 1996 to 
10 million U.S. dollars in 2000. Also, since 1998 several criminal 
convictions for television piracy have been made in Greece.
    In April 2001, Greece, the United States, and the European 
Commission sent a letter to the WTO outlining the Greek government's 
commitment to continue to reduce the level of audiovisual piracy. 
Consequently, the United States Trade Representative announced that the 
U.S., Greece, and the European Commission had resolved their dispute 
over audiovisual piracy and Greece was upgraded from the Priority Watch 
List to the Special 301 Watch List.
    Another significant intellectual property protection problem in 
Greece is lack of effective protection of copyrighted software. The 
piracy rate for entertainment software is very high in Greece. Pirated 
copies of console games enter Greece from Eastern and Central Europe 
and are produced locally. Pirated CD-based games are also imported and 
represent 90 percent of the illegal market with the rest locally 
produced on CD copiers. The Business Software Alliance reports the 
problems of counterfeit products loaded on hard disks and sales of 
counterfeit products throughout Greece. Like the other copyright 
industries, the computer software industry reports that it experiences 
long delays and non-deterrent fines, which kept its piracy rate in 2000 
at 66 percent of total sales, the highest in the European Union.
    Although Greek trademark legislation is fully harmonized with that 
of the EU, claims by U.S. companies of counterfeiting appear to be on 
the increase. U.S. companies report that counterfeit apparel is 
routinely brought into Greek ports from other non-EU countries.
    Intellectual property appears to be adequately protected in the 
field of patents. Patents are available for all areas of technology. 
Compulsory licensing is not used. Law protects patents and trade 
secrets for a period of twenty years. There is a potential problem 
concerning the protection of test data relating to non-patented 
products. Violations of trade secrets and semiconductor chip layout 
design are not problems in Greece.
8. Worker Rights
    The Greek economy is characterized by significant labor-market 
rigidities. Greek labor law prohibits laying off more than two percent 
per month of total personnel employed by a firm. This restricts the 
flexibility of firms and the mobility of Greek labor and contributes to 
unemployment. A law, which came into force in November 1999, obliges 
public and private firms employing more than 50 persons to hire up to 8 
percent of their staff from among the disabled, veterans descendants, 
and families with more than four children.
    a. The Right of Association: Approximately 30 percent of Greek 
workers are organized in unions, most of which tend to be highly 
politicized. While unions show support for certain political parties, 
particularly on issues of direct concern to them, they are not 
controlled by political parties or the government in their day-to-day 
operations. The courts have the power to ban strikes that they find 
illegal and abusive. Legislation permits dismissal of workers 
participating in illegal strikes, particularly those workers who have 
been designated as skeleton staff in public enterprises and utilities, 
so ``social needs'' will not be disrupted during a strike.
    Employers are not permitted to lock out workers, or to replace 
striking workers (public sector employees under civil mobilization may 
be replaced on a temporary basis).
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively was guaranteed in legislation passed 
in 1955 and amended in February 1990 to provide for mediation and 
reconciliation services prior to compulsory arbitration. Antiunion 
discrimination is prohibited, and complaints of discrimination against 
union members or organizers may be referred to the Labor Inspectorate 
or to the courts. However, litigation is lengthy and expensive, and 
penalties are seldom severe. There are no restrictions on collective 
bargaining for private workers. Social security benefits are legislated 
by Parliament and are not won through bargaining. Civil servants 
negotiate their demands with the Ministry for Public Administration.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is strictly prohibited by the Greek Constitution and is not 
practiced. However, the government may declare ``civil mobilization'' 
of workers in case of danger to national security or to social and 
economic life of the country.
    d. Minimum Age of Employment of Children: The minimum age for work 
in industry is 15, with higher limits for certain hazardous industries 
and lower age limits for family businesses, theaters, and the cinema.
    e. Acceptable Conditions of Work: Minimum standards of occupational 
health and safety are provided for by legislation, which the General 
Confederation of Greek Workers (GSEE) characterizes as satisfactory. In 
1998, GSEE complaints regarding inadequate enforcement of legislation 
were met when the Ministry of Labor established a new central 
authority, the Labor Inspectors Agency. The agency is accountable to 
the Minister of Labor and has extended powers, which include the power 
to close a factory that does not comply with minimum standards of 
health and safety.
    The government launched a second legalization process in 2001 
allowing undocumented immigrants who were living in Greece for more 
than one year to apply for residence and work permits. About 350,000 
immigrants from the estimated 800,000 aliens were registered and 
received a six month permit, during which they have to produce 
additional supporting documents in order to qualify for a full 
temporary residence permit valid for a year which is renewable. About 
250,000 aliens had registered during the previous legalization programs 
and received ``green cards'' which allow them to live and work in the 
country for one to three years. Those issued green cards have the same 
labor and social security rights as Greek workers. Non-registered 
immigrants are liable to summary deportation if arrested.
    f. Rights in Sectors with U.S. Investment: Although labor/
management relations and overall working conditions within foreign 
business enterprises may be among the most progressive in Greece, 
worker rights do not vary according to the nationality of the company 
or the sector of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  78
Total Manufacturing.........  ...........  29
  Food & Kindred Products...  -30          .............................
  Chemicals & Allied          33           .............................
   Products.
  Primary & Fabricated        2            .............................
   Metals.
  Industrial Machinery and    0            .............................
   Equipment.
  Electric & Electronic       13           .............................
   Equipment.
  Transportation Equipment..  0            .............................
  Other Manufacturing.......  11           .............................
Wholesale Trade.............  ...........  178
Banking.....................  ...........  117
Finance/Insurance/Real        ...........  152
 Estate.
Services....................  ...........  40
Other Industries............  ...........  77
    Total All Industries....  ...........  672
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                HUNGARY


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................     48.02      46.32   \2\ 50.0
  Real GDP Growth (pct)................       4.4        5.2        3.8
  GDP by Sector: (pct)
    Agriculture........................       4.8        4.1        4.0
    Manufacturing......................      27.7       29.2       29.2
    Construction.......................       4.7        4.6        4.8
    Services...........................      43.0       42.6       42.7
    Government.........................      19.8       19.5       18.8
  Per Capita GDP (US$).................     4,808      4,621      4,903
  Labor Force (000s)...................     4,113      4,146      4,080
  Unemployment Rate (pct)..............       6.5        6.0        5.6
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3).............      16.1       12.7   \3\ 15.1
  Average Consumer Price Inflation.....      10.0        9.8        7.8
  Official Exchange Rate (HUF/$ annual     237.29     282.27        290
   average)............................
 
Balance of Payments and Trade:
  Total Exports FOB....................      25.0       28.1       29.3
    Exports to United States...........        .5         .6     \4\ .7
  Total Imports CIF....................      28.0       32.1       32.8
    Imports from United States.........       1.9        2.7        2.5
  Trade Balance........................      -3.0       -4.0       -3.5
    Balance with United States.........      -1.4       -2.1       -1.8
  Current Account Deficit/GDP (pct)....       4.4        3.3        3.0
  Net External Public Debt.............       2.9       -0.2    \5\ 2.0
  Fiscal Deficit/GDP (pct).............       3.9        3.5        3.4
  Debt Service Payments/GDP (pct)......       9.3          9        8.5
  Gold and Foreign Exchange Reserves...      10.9       11.2   \5\ 12.0
  Aid from United States (US$ millions)       9.9        4.0          0
  Aid from All Other Sources...........       N/A        N/A        N/A
------------------------------------------------------------------------
\1\ Source: Central Statistical Office and National Bank data through
  October 2001, except as noted.
\2\ Apparent inconsistency with growth figures due to the strengthening
  of the dollar against the Hungarian forint.
\3\ September 2000 to September 2001.
\4\ Source: U.S. Department of Commerce; 2001 figures projected from
  January to August data. U.S and Hungarian-source bilateral trade
  figures differ markedly, due to country-of-origin distinctions in
  exports whose final assembly occurs in Hungary.
\5\ August 2001.


1. General Policy Framework
    Hungary has transformed into a middle-income country with a market 
economy and a well elaborated but still developing Western-oriented 
legal and regulatory framework. The first post-communist government 
(1990 to 1994) began significant economic reform, but was unable to 
privatize many state enterprises and implement systemic fiscal reforms, 
which led to large imbalances in Hungary's fiscal and external 
accounts. A successor government (1994 to 1998) achieved economic 
stabilization through an IMF-coordinated austerity program adopted in 
March 1995, and accelerated privatization and economic reform. In 2000, 
Hungary continued to post solid increases in industrial output, 
exports, and overall output. Continued economic restructuring under the 
current government (elected in May 1998) is expected to allow for 
sustainable growth in the medium term. Regional disparities in economic 
growth, income and employment exist in Hungary.
    A revised privatization program enacted in 1995 gave new momentum 
to sales of government enterprises and assets, largely on a cash basis, 
to Western companies. Privatization contributed to a rapid 
transformation of the energy, telecommunication, and banking sectors. 
Currently, over 80 percent of the country's GDP comes from the private 
sector, and Hungary has progressively lowered government expenditures 
as a percentage of GDP. Other significant reforms initiated in 1995 
include means testing of social welfare payments (partially reversed by 
the current government) and pension reform (implemented in January 
1998). The unfinished reform agenda includes rationalizing health care, 
tax reform and local government financing.
    Privatization revenues helped to reduce substantially Hungary's 
foreign debt. The government has an unblemished debt payment record and 
since late 1996 all major credit rating agencies have rated its foreign 
currency obligations at investment grade. Foreign currency reserves 
stood at $12 billion through August 2001, enough for more than four 
months of imports.
    The government has pledged to continue reducing fiscal deficits. 
The consolidated budget deficit in 2001 will equal about 3.4 percent of 
GDP, down from 3.5 percent in 2000. However, the government has 
dramatically increased off-budget spending for road construction and 
housing, bringing the real deficit to more than five percent of GDP. 
Hungary finances its state deficit primarily through foreign and 
domestic bond issues. Projections for Hungary's 2001 current account 
deficit vary widely, but recent monthly statistics indicate that the 
deficit could end up lower than the 2000 deficit of $1.5 billion. 
Following a cumulative decline of 17 percent from 1995 to 1996, net 
real wages are expected to increase 5 to 7 percent in 2001, after an 
estimated 4.3 percent increase in 2000.
    Hungary has been a leader among Central European countries 
inattracting foreign direct investment, with an estimated $23 billion 
in cumulative inflows since 1989. The United States is a leading 
investor in Hungary with over $8 billion in cumulative FDI since 1989. 
Tax incentives and related credits are available for foreign 
investments, especially in underdeveloped regions. Hungary will have to 
transform these into regional development schemes after its EU 
accession. Hungarian law currently permits the establishment of 
companies in customs-free zones, which are exempt from indirect 
taxation tied to the turnover of goods. These zones, the engines of 
Hungarian industry and foreign trade, will face significant changes 
after Hungary's EU accession, but until then there are no plans to 
reduce the preferences guaranteed to them.
    A signatory to the Uruguay Round Agreement and a founding member of 
the World Trade Organization, Hungary joined the Organization for 
Economic Cooperation and Development (OECD) in May 1996 and, as a part 
of that process, is further liberalizing capital account transactions. 
Hungary has harmonized many laws and regulations with European Union 
standards and has oriented economic policy towards the earliest 
possible accession date of January 1, 2003.
2. Exchange Rate Policy
    The Government Decree on Foreign Currency (effective June 16, 2001) 
made the Hungarian forint fully convertible and abolished remaining 
restrictions on currency transactions, including permitting foreigners 
to buy Hungarian bonds and invest in derivatives. Foreigners and 
Hungarians can maintain both hard currency and forint accounts. Hungary 
widened the intervention band for the forint from  2.25 to 
 15 percent on May 4, 2001, and eliminated the crawling peg 
on October 1, 2001. These changes have allowed the forint to fluctuate 
freely within the larger band. The forint was widely considered to be 
undervalued prior to the changes. In the months since, the forint 
appreciated steadily and in recent months settled at a rate about 9 
percent above the reference peg to the Euro, an appreciation of about 7 
percent. The crawling peg, in place since 1995, coupled with 
liberalization and prudent fiscal and monetary policy helped slow 
average annual inflation from 28.3 percent in 1995 to 9.8 percent in 
2000. The strengthening of forint in 2001 is expected to further reduce 
inflation in 2001 and 2002.
3. Structural Policies
    The market freely sets prices for most products and services. User 
prices for pharmaceuticals, public transport, and utilities are set in 
some cases by the state. The government offers a wholesale floor price 
for many agricultural products. Public opposition and regulatory 
intervention have prevented utility prices (e.g., natural gas for 
heating and cooking) from reaching market levels, causing power 
companies to receive less than the cost-plus-eight percent return 
stipulated in privatization contracts. MOL has suffered significant 
losses since 2000 because the government fixed natural gas prices at a 
level substantially lower than world market prices.
    Starting in 1997, successive governments have reduced income tax 
rates and employer social contributions in an effort to cut inflation, 
spur job growth, and shrink the gray economy. Corporate income tax 
remains low at 18 percent. A ten-year corporate tax holiday applies to 
investments of at least $33 million, as of October 2000, or $10 million 
in less developed regions, and a five-year, 50 percent tax holiday 
applies to investments of at least $3.3 million. Other incentive 
programs exist, including some offered by counties and municipalities. 
Consult the Country Commercial Guide for additional information.
    Major structural budget reform has been implemented and further 
legislation is expected in this area. In January 1998, a new ``three 
pillar'' pension system was introduced in which private funds initially 
augment and gradually supplant more of the current state-funded, pay-
as-you-go public system. The next areas of government finance reform 
are health care and local government financing. Health care costs are 
emerging as a drain on the budget and a source of fiscal indiscipline. 
The government continues to control pharmaceutical prices in order to 
limit health spending. Wholesale reforms are unlikely until after the 
2002 election.
4. Debt Management
    Hungary is a moderately indebted country with gross foreign debt 
expected to be $33.5 billion at the end of 2001. Net public domestic 
debt was $20.2 billion at the end of June 2001. Hungary is one of a 
handful of countries that has never defaulted or rescheduled its 
foreign debt. Moody's has upgraded the foreign currency ceilings for 
bonds and bank deposits in Hungary from Baa1 to A3, and other major 
credit rating companies to A- at the end of 2000. A standby credit 
arrangement with the IMF ended in February 1998 by mutual agreement. 
Hungary is expected to have reserves of $12 billion at the end of 2001.
5. Significant Barriers to U.S. Exports
    Hungary's trade policies are shaped primarily by its World Trade 
Organization (WTO) commitments and its efforts to accede to the 
European Union (EU). Hungary's progressive implementation of its 
Uruguay Round agreements has generally improved U.S. access to the 
Hungarian market. Hungary cut its average most-favored-nation (MFN) 
import duties from 13.6 percent in 1991 to 8.0 percent in 1998. Hungary 
has not yet acceded to the WTO Information Technology Agreement (but 
must as a condition of EU membership) and does not belong to the WTO 
Plurilateral Agreement on Civil Aircraft.
    Under Hungary's 1993 EU Association Agreement, Hungary completely 
eliminated tariffs on industrial products from the EU as of January 1, 
2001. EU nonindustrial exports can also enter Hungary with reduced 
tariff rates on a selective basis. However, until Hungary adopts the EU 
common external tariff (CXT), U.S. exports to Hungary are subject to 
MFN tariff rates, which are often quite high. For example, Hungary's 
MFN rate on automobiles is 43 percent, while automobiles of at least 60 
percent EU origin enjoy duty-free access. These differentials between 
tariffs on EU goods and U.S. goods disadvantage U.S. exporters, and the 
United States is in ongoing discussions with Hungary to reduce the 
differentials in key areas. Duty must be paid on imports from outside 
the Pan European Free Trade Zone, which may then be exported duty-free 
to other countries within the Zone. Duty paid on inputs processed and 
then exported within the zone is no longer refundable, a problem that 
the Hungarian government has addressed on a case-by-case basis for U.S. 
firms exporting from Hungary to European markets.
    Although 96 percent of imports (in value terms) no longer require 
an import license, quota constraints apply to some 20 product groups, 
including cars, textiles, and precious metals (the quotas, however, are 
not actually reached in most of these areas). Under WTO rules, Hungary 
will phase out quotas on textiles and apparel by 2004. As a result of 
the WTO Agricultural Agreement, quotas on agricultural products and 
processed foods have been progressively replaced by tariff-rate quotas. 
In 1997, Hungary eliminated an import surcharge imposed as part of the 
March 1995 austerity package.
    For domestic political reasons, Hungary has not yet implemented an 
amendment to the 1996 Media Law which would harmonize Hungary's 
broadcast regime with EU directives on content and quotas. Current 
draft legislation would require that over 50 percent of both public and 
private TV broadcasting be European programming, where practicable. In 
the meantime, the more restrictive original law still governs, which 
requires 70 percent European content. The Media Act revision would also 
limit any single cable provider to one-sixth of the household market. 
The Unified Communications Act passed in 2001 will eliminate the 
monopoly of the formerly state-owned telecommunications company at the 
end of 2001. Smaller local telephone operators have monopoly rights for 
local services until the end of 2002.
    On February 26, 2001, Hungary and the EU signed a Protocol to the 
Europe Agreement on Conformity Assessment and Acceptance of Industrial 
Products (PECA), under which the EU and Hungary agreed to recognize the 
results of each other's designated conformity assessment bodies, thus 
eliminating the need for further product testing of EU products 
imported into Hungary. However, it appears these benefits will only 
apply to products that are both of EU country origin and bear the 
``CE'' mark denoting compliance with EU standards. As such, products of 
U.S. origin that bear the CE mark may not receive testing-free entry 
into Hungary. The United States government has, and will continue to, 
discuss its concerns over PECA with Hungary and the EU in bilateral and 
multilateral settings.
    Foreign investment is allowed in every sector open to private 
investment. Foreign ownership is restricted to varying degrees in civil 
aviation, defense, and broadcasting. Only Hungarian citizens may own 
farmland. Hungary has requested a seven-year transition period after EU 
accession to eliminate this restriction.
    Under the November 1995 Law on Government Procurement, public 
tenders must be invited for purchases of goods with a value over 
$33,000. As of October 2000, the same is true of construction projects 
worth $66,000 or designs and services worth over $16,500. Bids that 
contain more than 50 percent Hungarian content receive a 10 percent 
price preference. This process does not apply to military purchases 
affecting national security, or to gas, oil, and electricity contracts. 
Hungary is not a party to the WTO Government Procurement Code, and some 
U.S. firms have taken legal action against non-transparency and 
procedural irregularities involving government tenders.
    Importers must file a customs document (VAM 91 form) with a product 
declaration and code number, obtained from the Central Statistical 
Office. Upon importation, the importer must present Commercial Quality 
Control Institute (KERMI) certified documentation to clear customs. 
This permit may be replaced by other national certification and testing 
agency documents, such as those of the National Institute for Drugs. 
Hungary participates in the International Organization for 
Standardization (ISC) and the International Electro-Technical 
Commission (IEC).
6. Export Subsidies Policies
    The Hungarian Export-Import Bank and Export Credit Guarantee 
Agency, both founded in 1994, provide credit and/or credit insurance 
for less than ten percent of total exports. Hungary offers no direct 
export subsidies on industrial products, but does give export subsidies 
to some agricultural products. After 1993, agricultural export 
subsidies exceeded Hungary's Uruguay Round commitments in the range and 
value of products subsidized; in October 1997, the WTO approved an 
agreement in which Hungary committed to phase out excess subsidies and 
not to expand exports of subsidized products to new markets. Hungary is 
abiding by the terms of that agreement in phasing out subsidies, 
despite continued political pressure from domestic constituencies.
7. Protection of U.S. Intellectual Property
    Intellectual property rights laws in Hungary are generally good, 
but insufficient resources, court delays, and relatively light 
penalties hamper enforcement. In 1993, the United States and Hungary 
signed a comprehensive Bilateral Intellectual Property Rights Treaty. 
Hungary belongs to the World Intellectual Property Organization; Paris 
Convention on Industrial Property; Hague Agreement on Industrial 
Designs; Nice Agreement on Classification and Registration of 
Trademarks; Madrid Agreement Concerning Registration and Classification 
of Trademarks; Patent Cooperation Treaty; and Berne and Universal 
Copyright Conventions. In 1998 Hungary ratified the new WIPO Copyright 
Treaty and Performances and Phonograms Treaty. In compliance with its 
TRIPS obligations, Hungary enacted a new copyright law that went into 
effect on September 1, 1999, that introduced modern copyright 
legislation. Some question exists of whether sufficient legal authority 
exists for civil ex parte search procedures.
    In May 2001, the United States Trade Representative announced that 
it had upgraded Hungary to the Special 301 Priority Watch List because 
Hungary does not adequately protect confidential test data submitted by 
pharmaceutical companies seeking marketing approval, contrary to its 
obligations under Article 39.3 of TRIPS. On April 12, 2001, the 
Hungarian government issued a ministerial decree to provide this so-
called data exclusivity protection, but the decree does not take effect 
until January 1, 2003, and would not provide protection for test data 
submitted prior to that date. The Hungarian government claims that its 
unfair competition legislation is adequate to prevent generic drug 
manufacturers from using data submitted by multinational research 
pharmaceutical firms, but examples exist where generics have actually 
come to market prior to or very soon after the original product. The 
United States has urged Hungary to rectify this situation at every 
possible opportunity. Hungary did not provide product patents (only 
process patents) for pharmaceuticals before 1994, and examples exist of 
domestic generic drugs coming to market before process patents expire.
    Pharmaceutical manufacturers have also tried unsuccessfully to get 
the Hungarian government to reverse the burden of proof in patent 
infringement court cases. The industry has also reported a lack of 
transparency in the Hungarian government's drug pricing and 
reimbursement policies, claiming the government discriminates against 
imported drugs in favor of domestically produced generics.
    Trademark infringement is a problem in Hungary, with various 
counterfeit goods (e.g., perfumes, clothing) available on the local 
market. These goods appear to be entering Hungary from other countries 
rather than being manufactured here. The number of civil actions 
brought before the Budapest Metropolitan Court (the exclusive court of 
competence for these cases) is up dramatically since 1997, but the 
enforcement of sanctions against the sale of pirated goods is still 
lacking. There are no available estimates of the losses incurred by the 
various industries due to either black or gray market activities. This 
area of IPR infringement is receiving increased attention from 
Hungarian and international law enforcement, however, due to the 
involvement of organized crime and connections with money laundering 
schemes.
    Copyright protection is weak in Hungary, with pirated CDs, tapes, 
videos, and software available on the local market. Many of these 
products are produced in Hungary. Video and cable television piracy is 
widespread, and local television and cable companies regularly transmit 
programs without authorization. U.S. industry estimates that 40 percent 
of the videotapes available in Hungary in 2000 were pirated copies. 
Local groups such as the Business Software Alliance and the Hungarian 
Anti-Piracy Association are funded in part by manufacturers 
associations (e.g., Motion Picture Association) and are working to 
reduce the level of piracy, in cooperation with Hungarian law 
enforcement. There are about 1,000 software copyright court cases tried 
each year. Government cooperation has been good, but not enough 
resources are available to effectively stop copyright infringement.
    The Pharmaceutical Research and Manufacturers Association estimates 
it loses between $50 and $100 million annually due to the data 
exclusivity problem and other weaknesses in Hungary's patent protection 
regime. The International Intellectual Property Alliance estimated 
losses to U.S. trade in 2000 due to copyright piracy at $55.6 million.
8. Worker Rights
    a. The Right of Association: The 1992 Labor Code, as amended in 
1999, recognizes the right of unions to organize and bargain 
collectively and permits trade union pluralism. Workers have the right 
to associate freely, choose representatives, publish journals, and 
openly promote members' interests and views. With the exception of 
military personnel and the police, they also have the right to strike.
    b. The Right to Organize and Bargain Collectively: Labor laws 
permit collective bargaining at the enterprise and industry levels. The 
Economic Council (formerly the Interest Reconciliation Council), a 
forum of representatives from employers, employees, and the government, 
sets the minimum and recommended wage levels in the private sector. 
Special labor courts enforce labor laws. Affected parties may appeal 
labor court decisions in civil court. The 1992 legislation prohibits 
employers from discriminating against unions and their organizers.
    c. Prohibition of Forced or Compulsory Labor: The government 
enforces the legal prohibition of compulsory labor.
    d. Minimum Age for Employment of Children: The Labor Code forbids 
work by minors under the age of 14, and regulates labor conditions for 
minors age 14 to 16 (e.g., in apprenticeship programs).
    e. Acceptable Conditions of Work: The Labor Code specifies 
conditions of employment, including: working time, termination 
procedures, severance pay, maternity leave, trade union consultation 
rights in management decisions, annual and sick leave entitlement, and 
conflict resolution procedures.
    f. Rights in Sectors with U.S. Investment: Conditions in specific 
goods-producing sectors in which U.S. capital is invested do not differ 
from those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  -47
Total Manufacturing.........  ...........  834
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          62           .............................
   Products.
  Primary & Fabricated        (\1\)        .............................
   Metals.
  Industrial Machinery and    399          .............................
   Equipment.
  Electric & Electronic       79           .............................
   Equipment.
  Transportation Equipment..  107          .............................
  Other Manufacturing.......  66           .............................
Wholesale Trade.............  ...........  151
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  (\1\)
 Estate.
Services....................  ...........  -55
Other Industries............  ...........  76
    Total All Industries....  ...........  1,040
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                IRELAND


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................    2,267.0      91,300      97,700
  Real GDP Growth (pct) \3\.........       10.5        11.5         6.0
  GDP by Sector: \4\
    Agriculture.....................      3,627       3,360         N/A
    Manufacturing...................     35,140      36,013         N/A
    Services........................     45,568      45,858         N/A
    Government......................      3,172       2,878         N/A
  Per Capita GDP (US$)..............    424,067      23,652      25,310
  Labor Force (000s)................      1,711       1,732       1.779
  Unemployment Rate (pct) \5\.......        5.6         4.1         3.7
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3E) \6\.....        N/A         N/A         N/A
  Consumer Price Inflation (pct)....        1.6         5.6         5.3
  Exchange Rate (IP/US$--annual
   average):........................
    Official........................        .74         .85         .92
    Parallel........................        N/A         N/A         N/A
 
Balance of Payments and Trade:
  Total Exports FOB \7\.............     70,200      73,125      75,600
    Exports to United States........     10,894      13,131      *7,488
  Total Imports CIF \7\.............     46,777      50,900      49,800
    Imports from United States......      7,733       8,288      *4,564
  Trade Balance.....................     23,423      22,225     *15,899
    Balance with United States......      3,161       8,750      *2,923
  External Public Debt \8\..........     46,845      40,483      34,294
  Exchequer Surplus/GDP (pct) \9\...        1.7         3.1         2.6
  Debt Service Payments/GDP (pct)...        3.6         2.4         N/A
  Gold and Foreign Exchange Reserves      5,693       6,794         N/A
  Aid from United States \10\.......          5           8           8
  Aid from All Other Sources \11\...      1,322       2,197         N/A
------------------------------------------------------------------------
* Total for January-June 2001.
\1\ 2001 figures are estimates based on data available through June
  2001.
\2\ GDP at current market prices.
\3\ GDP at constant market prices (local currency).
\4\ GDP at constant factor cost.
\5\ ILO definition.
\6\ Broad money (from 1998 CBI discontinued publishing M3E).
\7\ Merchandise trade.
\8\ Total amount owed by Irish government at year ending December 31,
  1999 and 2000 at the average yearly exchange rate. The figure for year
  2001 represents the value of government debt on March 31, 2001.
\9\ General government.
\10\ In 2000, the United States contributed 19.6 million dollars to the
  International Fund for Ireland (IFI). A further 19.6 million dollars
  is committed for 2001. It is estimated that a quarter of this amount
  is spent in the Republic of Ireland's border counties.
\11\ These figures include transfers from the EU's European Social fund,
  Regional Development Fund, Cohesion Fund and Special Program for
  Northern Ireland and the border counties, as well as the contributions
  from countries other than the United States to the IFI.
 
Sources: Central Bank of Ireland (CBI), Central Statistics Office (CSO),
  and National Treasury Management Agency (NTMA).


1. General Policy Framework
    In 2001, the Irish economy continues to grow strongly, albeit at a 
slower rate than previous years. The unprecedented double-digit 
economic growth recorded in 1999 and 2000 has tapered off and signs of 
slowdown are apparent. Last year's significant expansion in output was 
driven by strong domestic demand and impressive external trade 
performance. The deceleration on growth, as witnessed in the first six 
months of 2001, reflects the impact of a slowdown in the U.S. and the 
European Union and the effects of animal health problems.
    Most commentators trace the origins of Ireland's ``Celtic Tiger'' 
economy to the economic policy mix put in place in the late 1980s and 
maintained by successive governments since then. This included: (1) 
tight control of public spending in order to reduce government 
borrowing and taxation on corporate and personal incomes; (2) a de 
facto incomes policy, operated through national economic programs 
agreed by the government, employers, and trade unions, in order to 
limit wage growth and boost employment creation; (3) the ten (12.5 
percent beginning in 2003) percent corporate tax rate for international 
manufacturing and service companies, together with generous grants to 
export-oriented multinational firms who locate in Ireland; and (4) high 
levels of investment in education, training and physical 
infrastructure, much of it funded by generous transfers from the 
European Union. In contrast to the economic policies of the 1970s and 
early 1980s, the policy mix in the last decade has centered on supply-
side reforms to the economy, aimed at improving the attractiveness of 
Ireland as a location for overseas investment and increasing 
competitiveness of Irish-made goods in the international marketplace.
    The results have been impressive. Real Irish GDP growth has 
averaged over eight percent since 1994, and real Irish incomes have 
increased by almost two-thirds since the beginning of the decade. Fast 
growth has been accompanied by increasing openness to the world 
economy. In 2000, total imports and exports were equivalent to over 140 
percent of GDP, compared with under 100 percent a decade earlier. 
Thanks in large part to the strong performance of Irish-based U.S. and 
other multinational firms, Ireland now enjoys a huge surplus in 
merchandise trade (equivalent to 29 percent of GDP in 2000), which more 
than offsets trade deficits in services and factor incomes. Despite 
fast growth, inflation remained low for much of this period, averaging 
just two percent in 1994-97. Since late 1999, however, inflation has 
accelerated from year-on-year rates of 2 percent to a rate of 7 percent 
in November 2000, and slowed to 4.6 percent in August 2001. The weak 
value of the euro vis-a-vis the U.S. dollar, higher oil prices, 
increasing wage costs, rising disposable incomes, relatively low 
interest rates, lower taxes, fast employment, and strong growth in 
property prices have together resulted in these recent levels of high 
inflation.
    Fiscal policy: After the runaway public deficits of the mid 1980s, 
the Irish government has since maintained a more prudent fiscal 
position. Fast economic growth, combined with limited growth in public 
spending, has kept Ireland's general government deficit below 2.5 
percent of GDP since 1989. In recent years, Irish governments have 
enjoyed large general government surpluses. In 2000, the general 
government surplus was 3.6 percent of GDP and is expected to contract 
to 2.6 percent in 2001. This was consistent with the provisions of the 
1992 Maastricht Treaty, which required EU member states to keep their 
fiscal deficits below three percent of GDP, and allowed Ireland to be 
confirmed in May 1998, along with ten other EU member states, as a 
starting participant in the final stage of economic and monetary union 
(EMU), which began in 1999.
    In spring 2000, the European Commission censured Ireland for 
pursuing ``an over expansionary fiscal policy.'' Tax cuts in four 
consecutive budgets, coupled with significant increases in the 
Government of Ireland's spending, prompted the Commission to issue a 
formal censure to Ireland. In the Commission's eyes, Ireland breached 
the European Union's Broad Economic Policy Guidelines, and it was 
obligated to either postpone future tax cuts or cut back on public 
spending.
    Government surpluses, together with fast growth in national income, 
have reduced Ireland's Debt/GDP ratio from over 125 percent in 1987 to 
39 percent at the end of 2000. The National Treasury Management Agency 
predicts a further decline in 2001 in the ratio of about eight 
percentage points and another five percentage points in 2002. In 
nominal terms, national debt at the end of 2000 amounted to just over 
34.7 billion dollars. Of this, 5.5 percent was denominated in non euro 
currency. The burden of debt service costs on the economy and the 
taxpayer continued to fall in 2000. The ratio of interest payments to 
tax revenues declined by 2.5 percentage points, continuing the downward 
trend of the past several years. As a result, interest on the debt now 
absorbs some 7.6 percent of tax revenue compared to almost 28 percent 
in 1990.
    Personal income and consumption taxes form the bulk of total 
government tax revenue. There are two personal tax rates, the standard 
20 percent rate and the higher 42 per cent rate. The higher rate kicks 
in at slightly below the median industrial wage (about 23,000 dollars). 
In a bid to secure continued trade union commitment to modest nominal 
wage increases and to make entry level jobs more attractive to the 
long-term unemployed and non traditional participants in the Irish 
workforce (older citizens and mothers), the current government lowered 
personal tax rates and introduced a tax credit system. The rate of 
Value Added Tax (VAT), a consumption tax, at 20 percent, is high by 
European standards. VAT rates in EU Members States, including Ireland, 
can be raised, but not lowered, without EU approval.
    The standard rate of corporate tax is 20 percent. Corporate 
taxation, however, makes a relatively modest contribution to public 
finances, and few U.S.-owned businesses pay this rate because of the 
special ten percent rate available to companies producing 
internationally-traded manufactured goods and services, and to 
companies operating in certain industrial zones. Most Irish-based, 
U.S.-owned businesses pay corporate tax at the special ten percent 
rate. In response to European Commission criticism that the special 
rate of corporate tax constituted a subsidy to industry, the government 
committed to harmonize the special and standard rates to one single 
rate of 12.5 percent by 2003, thereby eliminating the differential 
treatment. In the interim, corporate taxes will fall from rates of 20 
percent in 2001 to 16 percent in 2002 and finally to 12.5 percent in 
2003.
    Monetary policy: Beginning in 1999, monetary policy in Ireland, as 
in the other eleven EU states adopting the single European currency, is 
formulated by the European Central Bank (ECB) in Frankfurt. The Irish 
Central Bank will continue to exist as a constituent member of the 
European System of Central Banks (ESCB) and will be responsible for 
implementing a common European monetary policy in Ireland (i.e. 
providing and withdrawing liquidity from the Irish inter-bank market at 
an interest rate set by the ECB). The governor of the Irish Central 
Bank (currently Maurice O'Connell) will, ex officio, have one vote in 
the ECB's 17-member monetary policy committee, although each national 
central bank governor in the committee will be expected to disregard 
the individual performances of their own national economies in 
formulating a common monetary policy for the euro area. The 1992 
Maastricht treaty identifies price stability as the primary objective 
of monetary policy under EMU. Price stability is defined by the ECB as 
a year-on-year increase in the harmonized index of consumer prices for 
the euro area of below two percent. In making its assessment of future 
consumer price movements, the ECB will consider trends in money supply, 
private sector credit, and a range of intermediate price indicators. 
The primary instrument of monetary policy is expected to be open market 
operations by the ECB and the national central banks (purchases and 
repurchases of government securities at a discount rate announced 
weekly).
2. Exchange Rate Policies
    On January 1, 1999, the Irish pound ceased to exist as Ireland's 
national currency, and the new single European currency, the euro, 
became the official unit of exchange. Although Irish currency continues 
to circulate until the introduction of euro notes and coins in January 
2002, it acts as a ``denomination'' of the euro, with an irrevocably 
fixed exchange rate to the euro and the eleven other participating 
currencies. The conversion rate between the Irish pound and the euro 
was fixed at the rate of one euro to Irish pounds 0.787564.
    The euro is freely convertible for both capital and current account 
transactions. The Maastricht Treaty makes exchange rate policy for the 
euro the responsibility of EU finance ministers, subject to the proviso 
that exchange rate policy does not threaten price stability in the euro 
area. Ireland is unique among all other euro members in that its 
largest trading partner, the UK, remains, for the near future, outside 
the single euro currency. Ireland's loss of control over its exchange 
rate with UK sterling poses risks to Irish industry dependent on UK 
suppliers. The current weak value of the euro vis-a-vis sterling places 
pressure on Irish importers to increase the flexibility of their cost 
base. Conversely, the weak euro has helped Irish producers to increase 
export flows to the UK and U.S. The fear at present is that the euro 
will appreciate against sterling and the dollar making Irish exports 
relatively expensive and uncompetitive. The Irish pound averaged $1.17 
against the dollar in 2000 (IP 1.0 = $ 1.35), and is expected to 
average in the region of $1.15 (IP 1.0 = 1.15) in 2001.
3. Structural Policies
    Economic policy in Ireland is geared primarily towards maintaining 
low unemployment and raising average living standards, although income 
redistribution, social cohesion and regional development are also 
important goals. After the failure of expansionary fiscal policies in 
the late 1970s to stimulate growth, government policy makers focused on 
supply-side measures aimed at creating an environment attractive to 
private enterprise and in particular to inward direct investment by 
export-oriented multinationals. The most important policies in this 
regard have been:

          (a) Tight control over the public finances in order to 
        maintain macroeconomic stability. In 1997, Ireland recorded its 
        first general government surplus in over 50 years;
          (b) The development of a social consensus on economic policy 
        through national wage agreements negotiated by the government, 
        employers, and trade unions. The latest agreement, the Program 
        for Prosperity and Fairness, took effect at the beginning of 
        April 2000 and trades off continued wage/pay moderation by 
        trade unions in return for substantial cuts in personal 
        taxation;
          (c) The promotion of greater competition and liberalization 
        in the economy, and reducing the number of state-owned 
        industries, particularly in the provision of transport, energy 
        and communications services;
          (d) The availability of a special ten percent rate of 
        corporate taxation and generous grants to attract foreign 
        investment, which rises to 12.5 percent from 2003 onwards;
          (e) a commitment to the single European market and to Irish 
        participation in EMU;
          (f) High levels of investment in education and training (of 
        all OECD countries, only the Japanese workforce has a higher 
        proportion of trained engineers and scientists); and
          (g) Improvements in physical infrastructure (in all areas 
        from roads to environmental systems to housing stock, details 
        of which are contained in the National Development Plan 2000-
        2006). Structural investment between 2000-2006 is expected to 
        total around 48 billion dollars. Much of this will be funded by 
        Irish tax payers as opposed to previous national development 
        plans, which were funded by generous EU transfers.

    The success of the above policies in attracting foreign investors 
and raising incomes has had two distinct effects on U.S. exports to 
Ireland. First, over 580 U.S. firms are now located in Ireland. These 
companies import a large proportion of their capital equipment and 
operating inputs from parent companies and other suppliers in the 
United States. Accordingly, the largest component of U.S. exports to 
Ireland is office machinery and equipment, followed by electrical 
machinery and organic chemicals. Second, the fast growth in both 
personal incomes and corporate profitability in Ireland has led to a 
strong increase in demand for U.S. capital and consumer goods from 
Irish companies and workers. The combination of the above two effects 
has seen U.S. exports to Ireland increase by a factor of five between 
1983 to 2000. As a result, the United States has become Ireland's 
second largest trading partner, behind only the UK.
4. Debt Management Policies
    The National Treasury Management Agency (NTMA) is the state agency 
responsible for the management of government debt. Ireland's General 
Government Debt at the end 2000 amounted to just over 40.5 billion 
dollars (using average 2000 exchange rates), equivalent to just over 31 
percent of GDP. By end 2000, Ireland's comparative indebtedness was the 
second lowest among the 15 EU Member States. The bulk of the national 
debt was accumulated in the 1970's and early 1980's, partly as a result 
of high oil prices, but more generally as a result of expanding social 
welfare programs and public-sector employment. However, because of 
increased fiscal rectitude since the late 1980s, Ireland is the only EU 
Member State to have a lower Debt/GDP ratio in 1997 than it had in 
1991.
    While the absolute level of debt has remained within a relatively 
narrow range over recent years, the ratio of Debt to GDP has declined 
sharply because of the very strong growth of the Irish economy. 
Reported 2000 debt service expenditure was 2,579 million dollars, some 
43 million dollars below the budget of 2,622 million dollars.
    The burden of debt service costs on the economy and the taxpayer 
continued to fall in 2000. The ratio of interest payments to tax 
revenues declined by 2.5 percentage points, continuing the downward 
trend of the past several years. As a result, interest on the debt now 
absorbs approximately 7.6 percent of tax revenue compared to almost 30 
percent in 1990. Debt servicing costs are expected to continue to fall 
significantly as a proportion of national income and total government 
expenditure in the coming years, reflecting moderate interest rates, 
falling nominal debt levels and sustainable Irish income growth. This 
should pave the way for further reform of the personal taxation system, 
resulting in lower personal income tax levels and thus increasing 
consumer demand for U.S. exports of goods and services.
5. Significant Barriers to U.S. Exports
    The United States is Ireland's second largest source of imports, 
behind only the UK. Total exports from the United States into Ireland 
in 2000 were valued at 8.4 billion dollars (17 percent of total 
imports), up from just over three billion dollars in 1990. Irish 
exports to the United States have increased at an even faster rate over 
the same period. Irish exports to the U.S. in 2000 standing at 13.1 
billion dollars resulting in a 4.7 billion dollars trade surplus for 
Ireland. Ireland has been running a trade surplus with the United 
States since 1997.
    The United States is the second largest exporter of goods to 
Ireland. The UK is the only country to outstrip the U.S. in the terms 
of value of merchandise products exported to Ireland. There are several 
significant barriers to trade of importance to potential U.S. 
exporters, particularly with regard to trade in services. Specifically, 
Ireland maintains some barriers in the aviation industry. Airlines 
serving Ireland may provide their own ground handling services, but are 
prohibited from providing similar services to other airlines. Under the 
agreement, any carrier of passengers or cargo providing North Atlantic 
services to Dublin airport must also provide service to Shannon airport 
on Ireland's west coast. In addition, under the bi-lateral U.S.-Ireland 
civil aviation agreement, the ``Shannon stopover'' requirement adds 
unnecessary costs to both U.S. air carriers and U.S. exporters.
    Ireland's markets for electricity and gas are being liberalized in 
accordance with EU energy directives. Ireland has opened 33-40 percent 
of its electricity market to competition, in accordance with EU 
guidelines. This development has sparked significant interest among 
electricity suppliers, both domestic and foreign, in the Irish 
electricity market. However, the provision of electricity in Ireland is 
relatively costly for suppliers owing to low demographic density in 
areas outside the major urban centers. The experience of private sector 
investors in the Irish energy market has been mixed. Suppliers of 
electricity have fared better than those in the gas sector.
    The market for telecommunications services in Ireland was fully 
liberalized in December 1998: more than one year ahead of the original 
timetable agreed to with the European Commission in 1996. Prior to 
liberalization, the state-owned telecommunications company, Telecom 
Eireann, was the monopoly provider of voice telephony services to the 
general public. The market for leased lines and other data transmission 
services was progressively liberalized earlier in the 1990s. Telecom 
Eireann was publicly floated on the Dublin and New York stock exchanges 
in May 1999, under its new name ``Eircom.'' As part of privatization, 
Eircom sold off the state-owned cable network, ``Cablelink'' to 
``Ntl,'' an Anglo-U.S. firm, which is presently launching a raft of 
telecommunications services ranging from an extension of the cable 
network to the provision of next generation internet facilities.
    There are three licensed mobile telephony network providers. These 
include Eircell (formerly a subsidiary of Eircom and now owned by a UK-
based Vodafone), Esat-Digiphone and Meteor (U.S. consortium). A 
competitive market environment is emerging in Ireland in both land 
based and mobile telecoms networks. The EU's telecom ministers decision 
of October 2000 agreed to a series of ``local loop unbundling rules.'' 
As a result, access to the last mile of telephone lines was liberalized 
in Ireland January 1, 2001. The Office of the Director of 
Telecommunications has set a tariff for the ``last mile,'' which is 
presently being challenged by Eircom in the Irish courts.
    Ireland still maintains some of the strictest animal and plant 
health import restrictions in the EU. These, together with EU import 
duties, effectively exclude many meat-based foods, fresh vegetables, 
and other agricultural exports from the United States. Restrictions 
also apply to certain foods containing genetically modified organisms 
(GMOs), bananas from outside the Caribbean area, cosmetics containing 
specified risk materials (SRMs), and some wines, although as with other 
goods, the above restrictions are determined at EU level.
    Ireland has been a member of the World Trade Organization (WTO) 
since January 1, 1995. The WTO agreement was ratified by the Irish 
parliament in November 1994. As a member of the EU, however, Ireland 
participates in a large number of EU regional trade agreements, which 
may distort trade away from countries with whom Ireland trades purely 
on an MFN, non-preferential WTO basis.
6. Export Subsidy Policies
    The government generally does not provide direct or indirect 
support for local exports. However, companies located in designated 
industrial zones, namely the Shannon Duty Free Processing Zone (SDFPZ) 
and Ringaskiddy Port, receive exemptions from taxes and duties on 
imported inputs used in the manufacture of goods destined for non-EU 
countries. Furthermore, Ireland applies a special ten percent rate of 
corporation tax (the standard rate is 20 percent) to companies 
producing manufactured goods and services for export to companies 
operating out of the SDFPZ and the International Financial Services 
Center (IFSC) in Dublin. Under pressure from the European Commission, 
which viewed the special tax as a subsidy to industry, the Irish 
government is now committed to eliminating the special rate by 
harmonizing at 12.5 percent by 2003.
    In May 1998, the United States instituted WTO dispute settlement 
consultations with Ireland in relation to Ireland's ``special trading 
house'' tax regime. Under section 39 of the Irish Finance Act 1980, the 
ten percent rate of corporation tax is available to ``special trading 
houses,'' which are companies that act as an access mechanism and 
marketing agent for Irish-manufactured products in foreign markets. 
Following the U.S. action, the Irish government announced in June 1998 
its intention to seek parliamentary approval for the termination of the 
scheme ``at the earliest opportunity.'' Trading houses already licensed 
under the scheme continued to receive the tax break until December 31, 
2000, when the scheme expired under existing EU directives.
    Other activities that qualify for the special ten percent rate of 
corporate taxation include design and planning services rendered in 
Ireland in connection with specified engineering works outside the 
European Union. This applies mainly to services provided by engineers, 
architects, and quantity surveyors. Profits from the provision of 
identical services in connection with works inside the EU are taxed at 
the standard 20 percent rate.
    Since January 1992, the government has provided export credit 
insurance for political risk and medium-term commercial risk in 
accordance with OECD guidelines. As a participant in the EU's Common 
Agricultural Policy (CAP), the Irish Department of Agriculture, Food 
and Rural Development administers CAP Export Refund and other subsidy 
programs on behalf of the EU Commission.
7. Protection of U.S. Intellectual Property
    Ireland is a member of the World Intellectual Property Organization 
and a party to the International Convention for the Protection of 
Intellectual Property. In July 2000, Irish President McAleese signed 
new legislation that brought Irish Intellectual Property Rights (IPR) 
law into compliance with Ireland's obligations under the WTO Trade-
related Intellectual Property Treaty (TRIPs). Following final 
administrative preparations required under the new law, the legislation 
came into force in early fall 2000 and gives Ireland one of the most 
comprehensive systems of IPR protection in Europe.
    The new Irish legislation is a wholesale reform of previous Irish 
IPR law. Among its many provisions, this new legislation specifically 
addresses several TRIPs inconsistencies in Irish copyright, patent and 
trademark legislation, which had been of concern to foreign investors, 
including the absence of a rental right for sound recordings, the lack 
of an ``anti-bootlegging'' provision, and low criminal penalties which 
failed to deter piracy. The new legislation should, by improving 
enforcement and penalties on both the civil and criminal sides, help 
reduce the high levels of software and video piracy in Ireland 
(industry sources estimated that in 2000, approximately 50 percent of 
PC software used in Ireland was pirated).
    As part of this new comprehensive copyright legislation, changes 
were also made to revise the non-TRIPs conforming sections of Irish 
patent law. Specifically, the new IPR legislation addresses two 
concerns of many foreign investors about the previous legislation. One, 
the compulsory patent licensing provisions of the previous 1992 patent 
law were inconsistent with the ``working'' requirement prohibition of 
TRIPs articles 27.1 and the general compulsory licensing provisions of 
article 31. Two, applications processed after December 20, 1991, did 
not conform to the non-discrimination requirement of TRIPs article 
27.1.
    In light of Irish government progress in passing new IPR 
legislation, USTR suspended WTO dispute settlements proceeding against 
Ireland and removed Ireland from the ``watchlist'' in its latest annual 
special 301 review of intellectual property protection by U.S. trading 
partners.
    Ireland offers exceptional trade and business opportunities in the 
technological services sector, particularly for e-commerce and other 
internet related businesses. The Irish government has put into place, 
ahead of many of its fellow EU Member States, flexible, market driven 
legal and regulatory regimes on key issues such as electronic 
signatures, consumer and data protection, encryption policy, and 
intellectual property protection for internet based industries. The 
government, as part of its goal of making Ireland a transatlantic e-
commerce hub, has aggressively invested in broad bandwidth throughout 
the country. Irish officials are also proactively supporting Irish 
private and public involvement in development of the ``next generation 
internet.'' The recently announced ``Technology Foresight Fund,'' an 
Irish government program to fund basic scientific research projects 
with potential for commercial development, will focus on computers and 
internet related research, as one of its priorities. There are no major 
trade barriers to exports or investment in e-commerce or internet 
related sectors.
    Opportunities in the biotechnology sector also exist. An initial 
government sponsored ``Consultation Paper'' on biotechnology 
development, released in 1999, strongly argued for increased government 
support for all areas of biotechnology research, development, and 
commercialization. Irish policies in the planting and consumer sale of 
genetically modified (GM) crops and food products are still evolving 
and there are some restrictions on importation of GM seeds and foods, 
in accordance with existing EU directives. Research involving GM crops 
and products is being conducted in Ireland after approval from the 
Irish environmental ministry.
    Ireland is a growing center for biomedical research and the Irish 
government has identified it as a priority sector for development. Both 
Irish and U.S. biomedical firms are active in Ireland. There are no 
significant barriers to either the export of biomedical products or 
foreign direct investment in the biomedical sector.
8. Worker Rights
    a. The Right of Association: The right to join a union is 
guaranteed by law, as is the right to refrain from joining. The 
Industrial Relations Act of 1990 prohibits retribution against strikers 
and union leaders. About 55 percent of workers in the public sector and 
45 percent in the private sector are trade union members. Police and 
military personnel are prohibited from joining unions or striking, but 
they may form associations to represent them in matters of pay, working 
conditions, and general welfare. The right to strike is freely 
exercised in both the public and private sectors. The Irish Congress of 
Trade Unions (ICTU), which represents unions in both the Republic and 
Northern Ireland, has 64 member-unions with 734,842 members.
    b. The Right to Organize and Bargain Collectively: Labor unions 
have full freedom to organize and to engage in free collective 
bargaining. Legislation prohibits antiunion discrimination. In recent 
years, most terms and conditions of employment in Ireland have been 
determined through collective bargaining in the context of a national 
economic pact. The current partnership agreement, the Program for 
Prosperity and Fairness, trades off moderation by trade unions in wage 
demands in return for cuts in personal taxation by the government. 
Employer interests in labor matters, and during the negotiations of 
these national partnership agreements, are represented by the Irish 
Business and Employers Confederation (IBEC). Foreign-owned businesses 
participate in IBEC at all levels. The Labor Relations Commission, 
established by the Industrial Relations Act of 1990, provides advice 
and conciliation services in industrial disputes. The Commission may 
refer unresolved disputes to the Labor Court. The Labor Court, 
consisting of an employer representative, a trade union representative, 
and an independent chairman, may investigate labor disputes, recommend 
the terms of settlement, engage in conciliation and arbitration, and 
set up joint committees to regulate conditions of employment and 
minimum rates of pay for workers in a given trade or industry.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law and does not exist in Ireland.
    d. Minimum Age of Employment of Children: New legislation 
introduced in 1997 prohibits the full-time employment of children under 
the age of 16, although employers may hire 14 or 15 year olds for light 
work on school holidays, or on a part-time basis during the school 
year. The law also limits the number of hours which children under age 
18 may work. These provisions are enforced effectively by the Irish 
Department of Enterprise, Trade and Employment.
    e. Acceptable Conditions of Work: After persistent lobbying by 
trade unions, the Irish government announced in April 1998 proposals 
for the introduction of a national hourly minimum wage of Irish pounds 
4.40 (around 5.30 dollars), which came into effect in April 2000. The 
national minimum wage was increased in July 2001 to Irish pounds 4.70.
    The standard workweek is 39 hours. In May 1997, a European 
Commission directive on working time was transposed into Irish law, 
through ``the Organization of Working Time Act, 1997.'' The Act set a 
maximum of 48 working hours per week, requires that workers be given 
breaks after they work certain periods of time, imposes limits to shift 
working, and mandates four weeks annual leave for all employees. Worker 
rights legislation increasingly is being set by the European 
Commission, and further Directives in this area, including rights for 
part-time workers and the right of equal treatment, can be expected in 
coming years.
    f. Rights in Sectors with U.S. Investment: The worker rights 
described above are applicable to all sectors of the economy, including 
those with significant U.S. investment.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  667
Total Manufacturing.........  ...........  9,874
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          3,753        .............................
   Products.
  Primary & Fabricated        192          .............................
   Metals.
  Industrial Machinery and    460          .............................
   Equipment.
  Electric & Electronic       1,433        .............................
   Equipment.
  Transportation Equipment..  32           .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  620
Banking.....................  ...........  -50
Finance/Insurance/Real        ...........  12,668
 Estate.
Services....................  ...........  9,277
Other Industries............  ...........  313
    Total All Industries....  ...........  33,369
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 ITALY


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP \2\......................    1,170.7     1,204.8     1,225.9
  Real GDP Growth (pct) \3\.........        1.6         2.9         1.7
  GDP (at current prices) \3\.......    1,179.8     1,073.8     1,123.0
  GDP by Sector:
    Agriculture.....................       33.7        28.6         N/A
    Manufacturing...................      247.9       225.8         N/A
    Construction....................       51.3        47.2         N/A
    Services........................      846.9       771.2         N/A
    Government......................      202.6       181.1         N/A
  Per Capita GDP (US$)..............     20,469      18,563      19,416
  Labor Force (millions)............       23.4        23.5        23.7
  Unemployment Rate (pct)...........       11.4        10.6         9.6
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \4\......        6.8         4.4         4.3
  Consumer Price Inflation..........        1.7         2.5         2.8
  Exchange Rate (Lira/US$ annual           1818        2102        2160
   average of market rate)..........
 
Balance of Payments and Trade:
  Total Exports FOB \5\.............      245.4       237.0       103.0
    Exports to United States \5\....       21.9        24.6        10.1
  Total Imports CIF \5\.............      220.5       235.7       102.5
    Imports from United States \5\..       10.7        12.5         5.5
  Trade Balance \5\.................       14.9         1.3         0.5
    Balance with United States \5\..       11.2        12.1         5.8
  External Public Debt..............       75.3        77.7         4.6
  Fiscal Deficit/GDP................        1.9         1.5         1.5
  Current Account Surplus/GDP (pct).        0.7        -0.4        -0.6
  Debt Service Payments/GDP (pct)           6.8         6.2         6.4
   \6\..............................
  Gold/Foreign Exchange Reserves....       45.2        40.4       47.1
------------------------------------------------------------------------
\1\ 2000 estimates based on data available through June.
\2\ 1995 prices; GDP at factor cost.
\3\ Percentage changes calculated in local currency. Exchange rate
  changes account for discrepancy between rising GDP figures (calculated
  in local currency) and falling current price GDP (calculated in
  dollars).
\4\ 1999 and 2000 data are the growth rate of M2 in the euro area
  through December 1999 and 2000. 2001 data is through June 2001.
\5\ Merchandise trade. 2001 data through May.
\6\ Represents total debt-servicing costs.


1. General Policy Framework
    Italy has the world's sixth largest economy, and is a member of 
major multilateral economic organizations such as the Group of Seven 
(G-7) industrialized countries, the Organization for Economic 
Cooperation and Development, the World Trade Organization, the 
International Monetary Fund, and the European Union.
    Italy is one of the 11 founding members of the European Economic 
and Monetary Union (EMU). Beginning in January 1999, EMU member 
countries adopted the euro as their currency and the new European 
Central Bank as their monetary authority. National currencies are being 
phased out and only euros will be used beginning on January 1, 2002. 
The lire will co-exist with the euro from January 1 to February 28, and 
can be used as an official currency for transaction. After February 28, 
2002 and for a period of ten years, lire can be exchanged for euros 
only at the Bank of Italy. Public opinion polls consistently rank Italy 
as one of the most ``pro-euro'' countries in Europe.
    Italy has a private sector characterized by a large number of small 
and medium-sized firms and a few multinational companies with wellknown 
names such as Fiat, Benetton, and Pirelli. Economic dynamism is 
concentrated in northern Italy, resulting in an income divergence 
between north and south that remains one of Italy's most difficult and 
enduring economic and social problems.
    The Italian government has traditionally played a dominant role in 
the economy through regulation and through ownership of large 
industrial and financial companies. Privatizations and regulatory 
reform since 1994 have reduced that presence significantly in some 
sectors. In other sectors, particularly in energy, the State still has 
a strong presence. The government retains a potentially blocking 
``golden share'' in industrial companies privatized thus far. The 
government and the Bank of Italy continue to shape merger and 
acquisition activity involving Italian financial and non-financial 
firms considered ``key'' to the economy and/or employment, and business 
surveys continue to cite a heavy bureaucratic burden as one of the main 
impediments to investing or doing business in Italy.
    For years, government spending has been high in comparison to EU 
standards, driven up by generous social welfare programs, inefficiency, 
and projects designed to achieve political objectives. The result has 
been large public sector deficits financed by debt. Beginning in the 
early 1990s, Italy started to address a number of macroeconomic 
problems in order to qualify for first round EMU membership. The public 
sector deficit fell from 1.9 percent of GDP in 1999 to 1.5 percent at 
end-2000, aided by higher than expected tax revenues. This year, lower 
than expected GDP growth and lower than expected tax revenues, 
particularly in capital gains, are expected to produce a deficit/GDP 
ratio well above the 0.8 percent target and as high as 1.2 percent. The 
level of public debt, second highest among the EMU countries as a share 
of GDP, has started to decline but remains over 100 percent of GDP. The 
Italian government plans to reduce the debt level gradually to the EMU 
target level of 60 percent of GDP in 2016.
    Up to December 31, 1998, price stability was the primary objective 
of monetary policy; the Bank of Italy carried out a restrictive 
monetary policy in an effort to defeat Italy's long-term inflation 
problem. Now these powers have been transferred to the European Central 
Bank, with the Bank of Italy retaining banking supervision 
responsibilities. Consumer inflation accelerated from 1.7 percent in 
1999 to 2.5 percent for 2000, fueled by higher oil prices, a weakening 
euro and worsening of terms of trade. This trend continued through the 
first seven months of 2001, producing an average inflation of 2.9 
percent. Inflation is expected to slow in the last part of the 2001, 
producing an average annual inflation rate of about 2.8 percent. 
Producer prices also accelerated from minus 0.3 percent in 1999 to 6.0 
percent in 2000, because of higher prices for petroleum and other raw 
materials and of the strengthening of the dollar versus the euro. 
Producer price increases decelerated to four percent in the first half 
of 2001 and are expected to decelerate further in the second half of 
the year.
2. Exchange Rate Policy
    On January 1, 1999 Italy relinquished control over exchange rate 
policy to the European Central Bank. The Euro, now used for non-cash 
transactions, begins circulation in January 2002 in twelve countries of 
the EU, including Italy. Italy's participation in the euro will 
simplify trade for those companies exporting to several EU countries.
3. Structural Policies
    Italy has not implemented any structural policies over the last 
three years that directly impede U.S. exports. Certain characteristics 
of the Italian economy impede growth and reduce import demand. These 
include rigid labor markets, underdeveloped financial markets, and a 
continued, heavy state role in the production sector. There has been 
some progress at addressing these structural issues. Privatization is 
reducing the government's role in the economy. The 1993 ``Single 
Banking Law'' removed a number of anachronistic restrictions on banking 
activity. Italy's implementation of EU financial service and capital 
market directives has injected further competition into the sector.
    U.S. financial service firms are no longer subject to an 
incorporation requirement to operate in the Italian market, although 
they must receive permission to operate from the government's 
securities regulatory body.
    U.S. financial service firms and banks are active in Italy, in 
particular in the wholesale banking and bond markets. In general, U.S. 
and foreign firms can invest freely in Italy, subject to restrictions 
in sectors determined to be of national interest, or in cases which 
create antitrust concerns.
4. Debt Management Policy
    Although the domestic public debt level is high, Italy has not had 
problems with external debt or balance of payments since the mid-1970s. 
Public debt is financed primarily through domestic capital markets, 
with securities ranging from three months to thirty years. Italy's 
official external debt is relatively low, constituting roughly 5.6 
percent of total debt. Italy maintains relatively steady foreign debt 
targets, and uses issuance of foreigndenominated debt essentially as a 
source of diversification, rather than need.
5. Significant Barriers to U.S. Exports
    In general, EU agreements and practices determine Italy's trade 
policies. These policies include preferential trade agreements with 
many countries.
    Import Licensing: With the exception of a small group of largely 
agricultural items, practically all goods originating in the United 
States and most other countries can be imported without import licenses 
and free of quantitative restrictions. There are, however, monitoring 
measures applied to imports of certain sensitive products. The most 
important of these measures is the automatic import license for 
textiles. This license is granted to Italian importers when they 
provide the requisite forms.
    Services Barriers: Italy is one of the world's largest markets for 
all forms of telephony and the largest and fastest growing European 
market for mobile telephony. More than 70 percent of Italy's population 
of 57 million use mobile phones. In recent years, the Italian 
government has undertaken a liberalization of this sector, including 
privatization of the former parastatal monopoly Telecom Italia 
(formerly STET); creation of an independent communications authority; 
and allowing both fixed-line and mobile competitors to challenge the 
former monopoly (which Olivetti acquired in a hostile takeover in 
1999). Following the EU's January 1, 1998, deadline for full 
liberalization of its telecommunications sector, Italy issued more than 
140 fixed-line licenses, including to new entrants, with U.S. 
participation. Omnitel Pronto Italia, which is partly U.S.owned, began 
offering cellular service in December 1995.
    Obtaining rights-of-way is one area where U.S. firms may have 
experienced difficulties. U.S. companies have raised concerns that 
current and former state parastatals (highways, gas, railways) hold 
almost all the best rights-of-way licenses. Under Italian code, state-
owned entities are not obligated to concede rights-of-way to 
communications' licensees. In addition, the Government of Italy and the 
Communications Authority maintain that they do not have any authority 
over local law provisions and decisions by municipalities that give 
preferential treatment to the former state-owned companies. Embassy 
will continue to monitor this issue carefully and raise this issue with 
appropriate Italian government officials.
    There has also been some recent concern regarding the continued 
presence of the government in the telecommunications market. In 
addition to maintaining a golden share in Telecom Italia, the 
Government of Italy has a controlling interest, through parastatal 
energy company ENEL, in WIND/Infostrada, the second largest national 
operator, as well as significant interest in Blu, another large 
national telecoms operator. In addition, the new center-right 
government is pursuing a plan to reduce responsibilities of the 
independent Communications Authority in favor of expanding the role of 
the Communications Ministry. Under plans of the former center-left 
government, the Ministry was slated to be abolished.
    In August 1997, Italy established an independent regulatory 
authority for all communications, including telecommunications and 
broadcasting. Concerns remain regarding regulatory due process, 
transparency, and even-handedness in general. Nevertheless, the Italian 
market is much more open to services imports in this sector than it was 
prior to implementation of the EU telecommunications' directive.
    In 1998, the Italian Parliament passed government-sponsored 
legislation including a provision to make Italy's national TV broadcast 
quota stricter than the EU's 1989 ``Broadcast Without Frontiers'' 
Directive. The Italian law exceeds the EU Directive by making 51 
percent European content mandatory during prime time, and by excluding 
talk shows from the programming that may be counted towards fulfilling 
the quota. Also in 1998, the government issued a regulation requiring 
all multiplex movie theaters of more than 1300 seats to reserve 15 to 
20 percent of their seats, distributed over no fewer than three 
screens, to screening EU films on a ``stable'' basis. In 1999, the 
government introduced ``antitrust'' legislation to limit concentration 
in ownership of movie theaters and in film distribution, including more 
lenient treatment for distributors that provide a majority of ``made in 
EU'' films to theaters.
    Firms incorporated in EU countries may offer investment services in 
Italy without establishing a presence. U.S. and other firms that are 
from non-EU countries may operate based on authorization from CONSOB, 
the securities oversight body. CONSOB may deny such authorization to 
firms from countries that discriminate against Italian firms.
    Foreign companies are increasingly active in the Italian insurance 
market, opening branches or buying shares in Italian firms. Government 
authorization is required to offer life and property insurance; this 
authorization is usually based on reciprocal treatment for Italian 
insurers. Foreign insurance firms must prove that they have been active 
in life and property insurance for not less than 10 years and must 
appoint a general agent domiciled in Italy.
    Italy imposes some limits on foreign ownership in banks. According 
to the Banking Law, a foreign institution wanting to increase its stake 
in a bank to above five percent needs authorization from the Bank of 
Italy.
    Some professional categories (e.g. engineers, architects, lawyers, 
accountants) face restrictions that limit their ability to practice in 
Italy without possessing EU/Italian nationality, having received an 
Italian university degree, or having been authorized to practice by 
government institutions. Regarding lawyers in particular, a recent 
Italian law could force foreign firms to reorganize the internal 
structures of their Italian firms.
    Standards: As a member of the EU, Italy applies the product 
standards and certification approval process developed by the European 
Community. Italy is required by the Treaty of Rome to incorporate 
approved EU directives into its national laws. However, there has 
frequently been a long lag in implementing these directives at the 
national level, although Italy has been improving its performance in 
this regard. In addition, in some sectors such as pollution control, 
the uniformity in application of standards may vary according to 
region, further complicating the certification process. Italy has been 
slow in accepting test data from foreign sources, but is expected to 
adopt EU standards in this area.
    Most standards, labeling requirements, testing and certification 
for food products have been harmonized within the European Union. 
However, where EU standards do not exist, Italy can set its own 
national requirements and some of these have been known to hamper 
imports of game meat, processed meat products, frozen foods, alcoholic 
beverages, and snack foods/confectionery products. Import regulations 
for products containing meat and/or blood products, particularly animal 
and pet food, have become more stringent in response to concerns over 
transmission of Bovine Spongiform Encephalopathy (BSE). U.S. exporters 
of ``health'' and/or organic foods, weight loss/diet foods, baby foods, 
and vitamins should work closely with an Italian importer, since 
Italy's labeling laws regarding health claims can be particularly 
stringent. In the case of food additives, coloring, and modified 
starches, Italy's laws are considered to be close to current U.S. laws, 
albeit sometimes more restrictive.
    U.S. exporters should be aware that any food or agricultural 
product transshipped through Italian territory must meet Italian 
requirements, even if the product is transported in a sealed and bonded 
container and is not expected to enter Italian commerce.
    Starting October 1, 2001, the EU, including Italy, requires that 
blood products, gelatin, tallow and mechanically removed meat such as 
that used in some pet foods, be subject to Commission regulation 1326/
2001. This regulation requires that various animal products, even pet 
foods, not intended for human consumption, not contain specified risk 
materials (SRMs) and that these foods be certified to that effect.
    In August 2000, Italy banned the commercialization of four biotech 
corn varieties that had been approved by the European Union after 
extensive testing. The ban appears to violate EU regulations.
    Rulings by individual local customs authorities can be arbitrary or 
incorrect, resulting in denial or delays of U.S. exports' entry into 
the country. Considerable progress has been made in correcting these 
deficiencies, but problems do arise on a case-by-case basis.
    Investment Barriers: While official Italian policy is to encourage 
foreign investment, industrial projects require a multitude of 
approvals and permits, and foreign investments often receive close 
scrutiny. These lengthy procedures can present extensive difficulties 
for the uninitiated foreign investor. There are several industry 
sectors which are either closely regulated or prohibited outright to 
foreign investors, including domestic air transport and aircraft 
manufacturing.
    Italian antitrust law gives the Antitrust Authority the right to 
review mergers and acquisitions over a certain threshold value. The 
government has the authority to block mergers involving foreign firms 
for ``reasons essential to the national economy'' or if the home 
government of the foreign firm does not have a similar anti-trust law 
or applies discriminatory measures against Italian firms. A similar 
provision requires government approval for foreign entities' purchases 
of five or more percent of an Italian credit institution's equity.
    Government Procurement: In Italy, fragmented, often nontransparent 
government procurement practices and previous problems with corruption 
have created obstacles to U.S. firms' participation in Italian 
government procurement. Italy has made some progress in making the laws 
and regulations on government procurement more transparent, by updating 
its government procurement code to implement EU directives. The 
pressure to reduce government expenditures while increasing efficiency 
is resulting in increased use of competitive procurement procedures and 
somewhat greater emphasis on best value, rather than automatic reliance 
on traditional suppliers.
6. Export Subsidies Policies
    Italy subscribes to EU directives and Organization for Economic 
Cooperation and Development (OECD) and World Trade Organization (WTO) 
agreements on export subsidies. Through the EU, it is a member of the 
General Agreement on Tariffs and Trade (GATT) agreements on agriculture 
and subsidies, and as a WTO member, is subject to WTO rules. Italy also 
provides extensive export refunds under the Common Agricultural Policy 
(CAP), as well as a number of export promotion programs. Grants range 
from funding of travel for trade fair participation to funding of 
export consortia and market penetration programs. Many programs are 
aimed at small to medium size firms. Italy provides some direct 
assistance to industry and business firms, in accordance with EU rules 
on support to depressed areas, to improve their international 
competitiveness. This assistance includes export insurance through the 
state export credit insurance body, as well as interest rate subsidies 
under the OECD consensus agreement.
    The Italian wheat-processing sector (pasta) in the past received 
indirect subsidies to build plants and infrastructure. While these 
plants are still operating, there are no known programs operating at 
present similar to the initial subsidies.
7. Protection of U.S. Intellectual Property
    Italy is a member of the World Intellectual Property Organization, 
and a party to the Berne and Universal Copyright Conventions, the Paris 
Industrial Property and Brussels Satellite conventions, the Patent 
Cooperation Treaty, and the Madrid Agreement on International 
Registration of Trademarks.
    In August 2000, the Italian Parliament enacted the long-awaited 
``anti-piracy'' law, providing for higher criminal penalties for IPR 
violations. Italy has since been removed from the U.S. Trade 
Representative's Special 301 IPR ``Priority Watch List'' to the ``Watch 
List.'' According to American film, music and software industry 
representatives, enforcement against piracy has been improving over 
recent years. With this new legislation, law enforcement agencies and 
magistrates are empowered with more effective tools to combat piracy 
and are, according to the industry, already obtaining very good 
results. In August 2001, the Government of Italy passed implementing 
regulations for the anti-piracy law. The regulations appear to 
generally satisfy U.S. industry, with some exceptions. The United 
States government will continue to closely monitor developments in this 
area.
8. Worker Rights
    a. The Right of Association: The law provides for the right to 
establish trade unions, join unions, and carry out union activities in 
the workplace. The unions claim to represent between 35-40 percent of 
the work force. Trade unions are free of government controls and have 
no formal ties with political parties. The right to strike is embodied 
in the constitution and is frequently exercised. In April 2000, a new 
law changed provisions of a 1990 measure governing strikes affecting 
essential public services (e.g., transport, sanitation, and health). 
The new law defined minimum service to be maintained during a strike as 
50 percent of normal, with staffing by at least one-third the normal 
work force. The law established compulsory cooling off periods and more 
severe sanctions for violations. Besides transport worker unions, the 
law also covers lawyers and self-employed taxi drivers. These changes 
enjoyed the backing of the three major national trade union 
confederations, which sought to avoid inconvenience to tourists and the 
traveling public alike during the Catholic Church's Jubilee year.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides for the right of workers to organize and bargain collectively, 
and these rights are respected in practice. By custom, although not by 
law, national collective bargaining agreements apply to all workers, 
regardless of union affiliation. Dismissals of workers must be 
justified in writing. If a judge deems the grounds spurious, he can 
order that a dismissed worker be reinstated or compensated. In firms 
employing more than 15 workers, the option to choose between 
reinstatement and compensation lies with the worker. In firms with 
fewer than 15 workers, this choice is the employer's.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, including that performed by children, and 
generally it does not occur. Some illegal immigrants and children were 
forced into prostitution. Trafficking of illegal immigrant women and 
children for prostitution and forced labor is also a problem.
    d. Status of Child Labor Practices and Minimum Age for Employment: 
The law forbids the employment of children under age 15, with some 
limited exceptions, and requires that those between the ages 15-18 
receive their education either in school for academic instruction or at 
a job site for vocational training. There also are specific 
restrictions on employment in hazardous or unhealthful occupations for 
men under age 18, and women under age 21. The enforcement of minimum 
wage laws is difficult in the extensive underground economy. Estimates 
of the number of child laborers differ, ranging from 30,000 to 350,000. 
The most probable figure may be in the range of 50,000. Most of these 
cases involve immigrants, but instances involving Italian children also 
have been reported. The footwear and textile industries have 
established a code of conduct that prohibits the use of child labor in 
their international as well as national activities, applicable to 
subcontractors as well. In 1999, a child labor clause was attached to 
the national labor contract in the health sector, whereby the parties 
committed themselves not to use surgical tools produced by child labor. 
The law forbids forced or bonded labor involving children. Italy 
ratified ILO convention 182 prohibiting the worst forms of child labor 
following completion of parliamentary action in May 2000.
    e. Acceptable Conditions of Work: Minimum wages are not set by law, 
but rather by collective bargaining agreements on a sector by sector 
basis. These specify minimum standards to which individual employment 
contracts must conform. A 1997 law reduced the legal workweek from 48 
to 40 hours. Most collective agreements provide for a 36 to 38 hour 
workweek. The average contractual workweek is 39 hours but is actually 
less for many industries. Overtime work may not exceed 2 hours per day 
or an average of 12 hours per week. Unless otherwise limited by a 
collective bargaining agreement, ceilings established in a 1998 law set 
maximum permissible overtime hours in industrial sector firms at no 
more than 80 per quarter and 250 annually. The law sets basic health 
and safety standards and guidelines for compensation for on-the-job 
injuries. For most practical purposes, European Union directives on 
health and safety also have been incorporated into the law. Labor 
inspectors are from the public health service or from the Ministry of 
Labor. Courts impose fines and sometimes prison terms for violation of 
health and safety laws. Workers have the right to remove themselves 
from dangerous work situations without jeopardizing their continued 
employment.
    f. Rights in Sectors with U.S. Investment: Conditions do not differ 
from those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  (\1\)
Total Manufacturing.........  ...........  14,498
  Food & Kindred Products...  934          .............................
  Chemicals & Allied          3,588        .............................
   Products.
  Primary & Fabricated        96           .............................
   Metals.
  Industrial Machinery and    1,167        .............................
   Equipment.
  Electric & Electronic       1,346        .............................
   Equipment.
  Transportation Equipment..  989          .............................
  Other Manufacturing.......  6,376        .............................
Wholesale Trade.............  ...........  2,637
Banking.....................  ...........  270
Finance/Insurance/Real        ...........  1,929
 Estate.
Services....................  ...........  2,236
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  23,622
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                            THE NETHERLANDS


                       Key Economic Indicators \1\
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \2\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\...................      399.8       369.0       379.5
  Real GDP Growth (pct) \4\.........        3.7         3.5         1.5
  GDP by Sector:
    Agriculture.....................        9.9         9.0         9.0
    Manufacturing...................       59.6        55.7        57.5
    Services........................      136.5       127.7       132.4
    Government......................       42.3        38.3        38.5
  Per Capita GDP (US$)..............     25,304      23,208      23,719
  Labor Force (000s)................      7,292       7,439       7,543
  Unemployment Rate (percent).......        4.0         3.6         3.2
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2) \5\.............        8.4        10.3         9.9
  Consumer Price Inflation..........        2.2         2.6         4.5
  Exchange Rate (guilders/US$ annual
   average):........................
    Official........................       2.07        2.39        2.50
 
Balance of Payments and Trade:
  Total Exports FOB \6\.............      198.3       206.2       209.6
    Exports to United States \7\....        8.5         9.7        10.2
  Total Imports CIF \6\.............      189.3       195.5       197.8
    Imports from United States \7\..       19.4        22.0        23.0
  Trade Balance \6\.................        9.0        10.7        12.8
    Balance with United States \7\..      -10.9       -12.3       -11.0
  Current Account Surplus/GDP (pct).        4.1         5.1         5.0
    External Public Debt \8\........          0           0           0
  Debt Service Payments/GDP (pct)          13.2         7.3         4.3
   \8\..............................
  Fiscal Deficit/GDP (pct)..........        0.4         1.5         1.0
  Gold and Foreign Exchange Reserves        N/A         N/A         N/A
   \9\..............................
  Aid from United States............          0           0           0
  Aid from All Other Sources........          0           0           0
------------------------------------------------------------------------
\1\ All figures have been converted at the average guilder/US$ exchange
  rate for each year.
\2\ 2001 figures are official forecasts or estimates based on available
  monthly data in October.
\3\ GDP at factor costs.
\4\ Percentage changes calculated in local currency.
\5\ Netherlands contribution to euro-zone monetary aggregates.
\6\ Merchandise trade.
\7\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 2001 figures are estimates based on data
  available through October 2001.
\8\ All public debt is domestic and denominated in guilders. Debt
  service payments refers to domestic public debt.
\9\ Since January 1, 1999, published by the European Central Bank on a
  consolidated basis.
 
Sources: Central Bureau of Statistics (CBS), Netherlands Central Bank
  (NB), Central Planning Bureau (CPB).


1. General Policy Framework
    The Netherlands is a prosperous and open economy, which depends 
heavily on foreign trade. It is noted for stable industrial relations; 
a large current account surplus from trade and overseas investments; 
net exports of natural gas; and a unique position as a European 
transportation hub with excellent ports, and air, road, rail, and 
inland waterway transport.
    Dutch trade and investment policy is among the most open in the 
world. The government successfully reduced its role in the economy 
during the 1990s, and structural and regulatory reforms have been an 
integral component of Dutch economic policy since the early 1980s. 
Telecommunication services have been fully liberalized since January 1, 
1998, and further deregulation and privatization of the Dutch 
electricity and gas markets will take place in 2004. The government 
continues to dominate the energy sector, and will play an important 
role in public transport and aviation for some time.
    Dutch economic policy is geared chiefly towards sustained and 
environmentally sustainable economic growth and development by way of 
fiscal consolidation, labor and product market reforms, economic 
restructuring, energy conservation, environmental protection, regional 
development, and other national goals. Economic policy is conducted 
within the framework of a national environmental action plan. General 
elections in May of 2002 will result in a new coalition government, 
which will likely continue current policies but also emphasize 
security, healthcare and education.
    After more than four years of average four percent GDP growth, 
falling unemployment and modest inflation, the Dutch economy has 
shifted into lower gear. The Dutch economy is expected to expand by 
less than two percent in 2001 and 2002 as a result of declining real 
growth rates for exports, consumer spending, and corporate investment. 
Employment growth will slow down considerably, stabilizing the level of 
unemployment at slightly over three percent of the labor force. 
Consumer price inflation will peak in 2001at close to five percent, 
partly reflecting imported inflation and a hike in indirect taxes. 
Inflation is forecast to ease to 2.5 percent in 2002.
    The Netherlands was one of the first EU member states to qualify 
for Economic and Monetary Union (EMU). Fiscal policy aims to strike a 
balance between further reducing public spending, and lowering taxes 
and social security contributions. The fiscal balance registered a 
surplus of 1.5 percent of GDP in 2000, and is expected to remain in 
surplus in 2001 (one percent of GDP) and beyond. The stock of public 
debt is forecast to fall from a high of 62.9 percent of GDP in 1999, to 
51.7 percent in 2001. Both fiscal deficit and public debt have 
converged well below the deficit and debt criteria in the EMU's Growth 
and Stability Pact.
    The deficit is largely funded by government bonds. Since January 1, 
1994, financing has also been covered by Dutch Treasury Certificates 
(DTC). DTCs replace a standing credit facility for shortterm deficit 
financing with the central bank that, under the Maastricht Treaty, was 
abolished in 1994.
2. Exchange Rate Policies
    Since the European Central Bank (ECB) assumed monetary 
responsibility on January 1, 1999, monetary policy is no longer under 
the exclusive control of the Dutch authorities but is determined by the 
Eurosystem (the European Central Bank and the 11 national Central Banks 
in the euro area), and is attuned to the euro area as a whole. On 
December 31, 1998, the exchange rate of the euro vis-a-vis the guilder 
was fixed at 2.20371 guilders to the euro. There are no multiple 
exchange rate mechanisms.
3. Structural Policies
    Tax Policies: Partly with an eye to further EU integration, the 
Dutch recently initiated a fundamental reform of the tax system. The 
new tax regime entails a shift from direct to indirect taxes, a 
broadening of the tax base, and a reduction of the tax rate on labor. 
On January 1, 2001, in a first step in the reform process, Dutch 
authorities lowered wage and individual income taxes, while raising 
excise duties, ``green'' taxes, and Value-Added Tax (VAT) rates. The 
highest marginal tax rate on wage and salary income was reduced from 60 
percent to 50 percent, while the top VAT rate was increased from 17.5 
to 19 percent. The effective corporate income tax rate in the 
Netherlands is among the lowest in the European Union. Effective 
January 1, 1998, the standard corporate tax rate paid by corporations 
(including foreign-owned corporations) was reduced from 36 percent to 
35 percent on all taxable profits. Since January 1, 1997, the Dutch 
have been offering multinationals a more attractive tax regime for 
their group finance activities, effectively reducing the tax on 
internal banking activities from 35 percent (the standard corporate tax 
rate) to 7 percent.
    Regulatory Policies: Limited, targeted, transparent investment 
incentives are used to facilitate economic restructuring and to promote 
economic growth throughout the country. Investment subsidies are 
available to foreign and domestic firms alike. Subsidies are also 
available to stimulate research and development and to encourage 
development and use of new technologies by small and medium sized 
firms.
    Complying with EU competition legislation, new Dutch competition 
legislation became effective on January 1, 1998. The new Competition 
Law includes a provision for the supervision of company mergers by the 
Netherlands Competition Authority (NMA). The law is expected to boost 
competition, improve transparency, and provide greater de facto access 
to a number of sectors for foreign companies.
4. Debt Management Policies
    With a current account surplus of close to five percent of GDP and 
no external debt, the Netherlands is a major creditor nation. Since the 
early 1980s, gross public sector debt (EMU criterion) has grown 
sharply, to 81.2 percent of GDP. Starting in 1993, the Dutch fiscal 
balance has drastically improved. The debt to GDP ratio is also falling 
more rapidly than anticipated. Debt servicing and rollover in 2000 fell 
to less than eight percent of GDP, with interest payments amounting to 
three percent of GDP. All government debt is domestic and denominated 
in guilders. There are no difficulties in tapping the domestic capital 
market for loans, and public financing requirements are generally met 
before the end of each fiscal year. The Netherlands is a major foreign 
assistance donor nation with a bilateral and multilateral development 
assistance budget of 1.1 percent of GDP, equal to $4.8 billion in 2001. 
Official Development Aid (ODA) amounts to 0.8 percent of GDP or $3.5 
billion. The Netherlands belongs to, and strongly supports, the IMF, 
the World Bank, EBRD, and other international financial institutions.
5. Significant Barriers to U.S. Exports
    The Dutch pride themselves on their open market economy, 
nondiscriminatory treatment of foreign investment, and a strong 
tradition of free trade. Foreign investors receive full national 
treatment, and the Netherlands adheres to the OECD investment codes and 
the International Convention for the Settlement of Investment Disputes. 
There are no significant Dutch barriers to U.S. exports, and relatively 
few trade complaints are registered by U.S. firms.
    The few trade barriers that do exist usually result from common EU 
policies. Within the European Union, the European Commission has 
authority for developing most aspects of EU-wide external trade policy, 
and most trade barriers faced by U.S. exporters in EU member states are 
the result of common EU policies. Such trade barriers include: 
restrictions on wine exports; local (EU) content requirements in the 
audiovisual sector; standards and certification requirements (including 
those related to aircraft and consumer products); product approvals and 
other restrictions on agricultural biotechnology products; sanitary and 
phytosanitary restrictions (including a ban on import of hormone-
treated beef); export subsidies in the aerospace and shipbuilding 
industries; and trade preferences granted by the EU to various third 
countries. A more detailed discussion of these and other barriers can 
be found in the country report for the European Union.
    The following are areas of bilateral concern for U.S. exporters:
    Offsets for Defense Contracts: All foreign contractors must provide 
at least 100 percent offset/compensation for defense procurement over 
five million Dutch Guilders (about $2.5 million). The seller must 
arrange for the purchase of Dutch goods or permit the Netherlands to 
domestically produce components or subsystems of the systems it is 
buying. A penalty system for noncompliance with offset obligations is 
under consideration.
    Broadcasting and Media Legislation: The Dutch fully comply with the 
EU Broadcast Directive. Commercial broadcasters may apply for temporary 
exemptions of the quota requirement on an ad hoc basis.
    Cartels: Although the export sector of the Dutch economy is open 
and free, cartels have long been a component of the domestic sector of 
the economy. Cartel legislation, which took effect in 1996, bans 
cartels unless its proponents can conclusively demonstrate a public 
interest. Since 1998, the United States has received no complaints by 
U.S. firms of having been disadvantaged by cartels in the Netherlands.
    Pharmaceuticals: U.S. pharmaceutical companies have complained that 
the criteria used by the Dutch Health Insurance Board too often result 
in their new-to-market products being incorrectly classified with 
compounds determined by the board as ``therapeutically equivalent'' 
(and therefore reimbursable at a lower rate) than as ``unique, 
innovative compounds,'' reimbursed at a higher international reference 
price. U.S. companies have also voiced concerns that the Dutch Health 
Insurance Board procedures have resulted in considerable and 
unnecessary delays in classifying products for reimbursement.
6. Export Subsidies Policies
    Under the Export Matching Facility, the government provides 
interest subsidies for Dutch export contracts competing with government 
subsidized export transactions in third countries. These subsidies 
bridge the interest cost gap between Dutch export contracts and foreign 
contracts which have benefited from interest subsidies. The government 
provides up to 10 million guilders (about $5.5 million) of interest 
subsidies per export contract, up to a maximum of 35 percent of the 
interest costs of the export transaction. An export transaction must 
have at least 60 percent Dutch content to be eligible. For defense, 
aircraft and construction transactions, the minimum Dutch content is 
one-third.
    There is a local content requirement of 70 percent for exporters 
seeking to insure their export transactions through the Netherlands 
Export Insurance Company.
    Adhering to the EU shipbuilding regime, the Dutch have discontinued 
generic support of their shipbuilding industry effective January 1, 
2001.
7. Protection of U.S. Intellectual Property
    The Netherlands has a generally good set of IPR legislation and 
regulations in place. It belongs to the World Intellectual Property 
Organization (WIPO), is a signatory of the Paris Convention on 
Industrial Property and the Berne Copyright Convention, and conforms to 
accepted international practice for protection of technology and 
trademarks. Patents for foreign inventions are granted retroactively 
from the date of original filing in the home country, provided the 
application is made through a Dutch patent lawyer within one year of 
the original filing date. Patents are valid for 20 years. Legal 
procedures exist for compulsory licensing if the patent is determined 
to be inadequately used after a period of three years, but these 
procedures have rarely been invoked. Since the Netherlands and the 
United States are both parties to the Patent Cooperation Treaty (PCT) 
of 1970, patent rights in the Netherlands may be obtained if PCT 
application is used. The Netherlands is a signatory of the European 
Patent Convention, which provides for a centralized Europewide patent 
protection system. This convention has simplified the process for 
obtaining patent protection in the member states. Infringement 
proceedings remain within the jurisdiction of the national courts, 
which could result in divergent interpretations potentially detrimental 
to U.S. investors and exporters.
    The enforcement of antipiracy laws remains a concern to U.S. 
producers of software, audio and videotapes, and textbooks. According 
to the estimates of the Business Software Alliance, as much as 40 
percent of all software used in the country is illegally copied. The 
Dutch government has recognized the need to protect intellectual 
property rights and law enforcement personnel have worked with industry 
associations to find and seize pirated software. Dutch IP legislation 
explicitly includes computer software as intellectual property under 
the copyright statutes.
8. Worker Rights
    a. The Right of Association: The right of Dutch workers to 
associate freely is well established. One quarter of the employed labor 
force belongs to unions, but union-negotiated collective bargaining 
agreements are usually extended to cover about three-quarters of the 
workforce. Membership of labor unions is open to all workers including 
military, police, and civil service employees. Unions are entirely free 
of government and political party control and participate in political 
life. They also maintain relations with recognized international bodies 
and form domestic federations. Dutch unions are active in promoting 
worker rights internationally. All union members, except most civil 
servants, have the legal right to strike. Civil servants have other 
means of protection and redress. There is no retribution against 
striking workers. In the European Union, the Netherlands has one of 
lowest percentages of days lost due to labor strikes. In 2000, some 
9,400 labor days were lost due to industrial disputes compared with 
75,800 days in 1999.
    b. The Right to Organize and Bargain Collectively: This right is 
recognized and well established. There are no union shop requirements. 
Discrimination against workers because of union membership is illegal. 
Dutch society has developed a social partnership between the 
government, employers' organizations, and trade unions. This tripartite 
``Social Partnership'' involves all three participants in negotiating 
guidelines for collective bargaining agreements which, once reached in 
a sector, are extended by law to cover the entire sector. Such 
generally binding agreements (AVVs) cover most Dutch workers.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor, including that by children, is prohibited by the constitution 
and does not exist.
    d. Minimum Age for Employment of Children: Child labor laws exist 
and are enforced. The minimum age for employment of young people is 16. 
Even at that age, youths may work full time only if they have completed 
the mandatory 10 years of schooling and only after obtaining a work 
permit (except for newspaper delivery). Those still in school at age 16 
may not work more than eight hours per week. Laws prohibit youths under 
the age of 18 from working at night, overtime, or in areas that could 
be dangerous to their physical or mental development.
    e. Acceptable Conditions of Work: Dutch law and practice adequately 
protect the safety and health of workers. Although a forty-hour 
workweek is established by law, the official average workweek for 
adults working full time currently averages 37 hours. Work-shortening 
programs (ADV) effectively reduce the average workweek to 36 hours. The 
gross minimum wage in 2001 amounted to about $1,000 per month. The 
legallymandated minimum wage is subject to a semi-annual cost of living 
adjustment. Working conditions are set by law, and regulations are 
actively monitored.
    f. Rights in Sectors with U.S. Investments: The worker rights 
described above hold equally for sectors in which U.S. capital is 
invested.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  3,149
Total Manufacturing.........  ...........  24,228
  Food & Kindred Products...  2,830        .............................
  Chemicals & Allied          12,832       .............................
   Products.
  Primary & Fabricated        -52          .............................
   Metals.
  Industrial Machinery and    2,925        .............................
   Equipment.
  Electric & Electronic       3,584        .............................
   Equipment.
  Transportation Equipment..  -26          .............................
  Other Manufacturing.......  2,135        .............................
Wholesale Trade.............  ...........  10,486
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  71,373
 Estate.
Services....................  ...........  4,602
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  115,506
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 NORWAY


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1999        2000      \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.......................    153,526     161,807     164,700
  Real GDP Growth (pct) \2\.........        1.1         2.3         2.4
  Real Mainland GDP Growth (pct)....        1.0         1.8         1.5
  GDP by Sector:
    Agriculture.....................      2,942       2.642       2,600
    Manufacturing...................     16,627      14,795      14,900
    Oil and Gas Production..........     21,756      38,780      38,400
    Services........................     87,324      82,841      84,300
    Government......................     23,944      24,739      26,600
  Per Capita GDP (US$)..............     34,423      36,037      36,519
  Labor Force (000s)................      2,330       2,350       2,360
  Unemployment Rate (pct)...........        3.2         3.4         3.3
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        5.5         8.5         8.0
  Consumer Price Inflation..........        2.3         3.1         3.3
  Exchange Rate (NOK/US$--annual            7.8         8.8         9.0
   average).........................
 
Balance of Payments and Trade:
  Total Exports FOB.................     45,680      60,136      58,800
    Exports to United States \3\....      4,051       5,710       5,650
  Total Imports CIF.................     35,474      34,386      35,400
    Imports from United States \3\..      1,440       1,544       1,900
  Trade Balance.....................     10,206      25,750      24,400
    Balance with United States......      2,611       4,166       3,750
  External Public Debt..............        922         850         750
  Fiscal Surplus/GDP (pct)..........        2.7        10.8        14.6
  Current Account Surplus/GDP (pct).        3.9        14.3        13.7
  Debt Service Payments/GDP (pct)...         42          72         100
  Gold and Foreign Exchange Reserves     24,819      27,939      29,000
   \4\..............................
  Aid from United States............          0           0           0
  Aid from All Other Sources........          0           0           0
------------------------------------------------------------------------
\1\ 2001 figures are all estimates based on monthly data in October
  2001.
\2\ Growth figures are based on local currency GDP values.
\3\ U.S. Department of Commerce statistics.
\4\ Includes gold but excludes assets in the state petroleum fund.


1. General Policy Framework
    Exploitation of Norway's major non-renewable energy resources, 
crude oil and natural gas, will most likely remain the major foundation 
for production and income growth for at least the next three decades. 
On Norway's offshore continental shelf, remaining oil reserves, 
discovered plus undiscovered, will last for some 30 years at current 
extraction rates, while the equivalent figure for natural gas is about 
125 years. On the mainland, energy-intensive industries such as metal 
processing and fertilizer production will remain prominent thanks to 
abundant hydropower resources.
    Some constraints continue to limit Norway's economic flexibility 
and ability to maintain international competitiveness. Labor 
availability remains limited by Norway's small 4.5 million population 
and a restrictive immigration policy. Norway is also a high-cost 
country with a centralized collective wage bargaining process and 
government- provided generous social welfare benefits. Norway's small 
agricultural sector remains protected from international competition by 
subsidies and other barriers to trade.
    State intervention in the economy remains significant. The 
government owns up to 50 percent of domestic businesses, although part-
privatization of state oil firm, Statoil, and state telecoms group, 
Telenor, has taken place over the past year. In December 2000, the 
Government of Norway proposed part-privatization of Statoil, up to one-
third of the company, and the sale of 21.5 percent of the State Direct 
Financial Interest (SFDI) to Statoil, 15 percent, and other oil 
companies, 6.5 percent. Parliament agreed to the Government of Norway's 
plan, and 23 percent of Statoil was sold in an initial stock market 
offering on June 18, 2001. Telenor, meanwhile, was part-privatized in 
December 2000, leaving the government with a stake of 78 percent. In 
June 2000, the Government of Norway announced that the state stake in 
Telenor may be cut to 34 percent. While part-privatization has been 
taken place, the state is expected to remain in effective control of 
Statoil, Telenor, and Norway's two leading banks by keeping stakes of 
at least one-third, enough to control the boards of these enterprises. 
While new legislation governing investment was implemented in 1995 to 
meet European Economic Area (EEA) and WTO obligations, screening of 
foreign investment and restrictions on foreign ownership remains.
    The government's dependence on petroleum revenue has increased 
substantially since the early 1970's, generating 33.5 percent of total 
government 2001 revenue. Since 1995, Norway has been a net foreign 
creditor and has posted budget surpluses. The surpluses are transferred 
to a petroleum fund and invested in foreign assets (an estimated US$67 
billion at the end of 2001) to meet future spending.
    No general tax incentives exist to promote investment. Tax credits 
and government grants are offered, however, to encourage investment in 
northern Norway; and tax incentives are granted to encourage the use of 
environmentally-friendly products such as liquid gas driven buses and 
the electric car. Several specialized state banks provide subsidized 
loans to sectors including agriculture and fishing. Transportation 
allowances and subsidized power are also available to industry. Norway 
and the EU have preferential access to each other's markets, except for 
the agricultural and fisheries sectors, through the EEA agreement, 
which entered force in January 1994. Although in a 1994 national 
referendum Norwegians rejected a proposal to join the EU, Norway 
routinely implements most EU directives as required by the EEA.
    The government controls the growth of the money supply through 
reserve requirements imposed on banks, open market operations, and 
variations in the central bank overnight lending rate. The central 
bank's flexibility in using the money supply as an independent policy 
instrument is limited by the government's priority to maintain a stable 
rate of exchange.
2. Exchange Rate Policy
    The government aims to keep the Norwegian currency (krone) stable. 
On March 29, 2001, the government issued a new regulation on monetary 
policy, with the introduction of an inflation target of 2.5 percent. 
The central bank noted that the new policy guidelines would few 
implications for Norwegian foreign exchange rate policy because stable 
inflation goes along with currency stability.
    By way of background, the Norwegian krone was un-pegged from the 
European Currency Unit (ECU) in December 1992. Since 1994, the 
government's stated policy has been to maintain krone stability vis-a-
vis European currencies. The central bank uses interest rates and open 
market operations to foster currency stability in a managed float. With 
the introduction of the euro January 1, 1999, Norwegian policy was to 
keep the krone stable against the euro.
    Quantitative restrictions on credit flows from private financial 
institutions were abolished in the late 1980's. Norway dismantled most 
remaining foreign exchange controls in 1990. U.S. companies operating 
within Norway have not reported any problems to the embassy in 
remitting payments.
3. Structural Policies
    The government's top economic priorities include maintaining high 
employment, generous welfare benefits, and rural development. These 
economic priorities are part of Norway's regional policy of 
discouraging internal migration to urban centers in the south and east 
and of maintaining the population in the north and other sparsely 
populated regions. Thus, parts of the mainland economy, particularly 
agriculture and rural industries, remain protected and cost-inefficient 
from a global viewpoint with Norway's agricultural sector being the 
most heavily subsidized in the OECD. While some progress has been made 
in reducing subsidies in the manufacturing industry, support remains 
significant in areas including food processing and shipbuilding.
    A revised legal framework for the functioning of the financial 
system was adopted in 1988, strengthening competitive forces in the 
market and bringing capital adequacy ratios more in line with those 
abroad. Further liberalization in the financial services sector 
occurred when Norway joined the EEA and accepted the EU's banking 
directives. The Norwegian banking industry has returned to 
profitability following reforms prompted by the banking crises in the 
early 1990's.
    Norway has taken some steps to deregulate the non-bank service 
sector. Although large parts of the transportation markets, including 
railways, remain subject to restrictive regulations, including 
statutory barriers to entry, deregulation of government 
telecommunications services has taken place since 1998.
4. Debt Management Policies
    The state's exposure in international debt markets remains very 
limited thanks to the Norway's growing oil wealth and the country's 
prudent budgetary and foreign debt policies. The government's gross 
external debt situation significantly improved in 1990's, declining 
from about US$ 10 billion in 1993 to about US$ 750 million in 2001. 
Norway's status changed from a net debtor to a net creditor country in 
1995 largely because of the oil/gas-boosted budgetary surpluses.
5. Significant Barriers to U.S. Exports
    Norway is a member of the WTO and supports free trade principles, 
but barriers to trade remain in place. The government maintains high 
agricultural tariffs that are administratively adjusted when internal 
market prices fall outside certain price limits. These unpredictable 
administrative tariff adjustments disrupt advance purchase orders and 
limit agricultural imports into Norway from the U.S. and other distant 
markets.
    State ownership in Norwegian industry continues to complicate 
competition in a number of sectors including telecommunications, 
financial services, oil and gas, and alcohol and pharmaceutical 
distribution. Despite some ongoing reforms, Norway still maintains 
regulatory practices, certification procedures and standards that limit 
market access for U.S. materials and equipment in a variety of sectors, 
including telecommunications and oil and gas materials and equipment. 
U.S. companies, particularly in the oil and gas sector, operate 
profitably in Norway.
    While there has been substantial banking reform, competition in 
this sector still remains limited due to government part-ownership of 
the two largest commercial banks, and the existence of specialized 
state banks, which offer subsidized loans in certain sectors and 
geographic locations.
    Restrictions also remain in the distribution of alcohol, which 
historically has been handled through state monopolies, and in the way 
pharmaceutical drugs are marketed. Norway is obligated to terminate 
these monopolies under the EEA accord but implementation is slow. The 
European Free Trade Association (EFTA) surveillance agency (ESA--the 
organization responsible for insuring EEA compliance) has been 
monitoring Norway's progress in these areas.
6. Export Subsidy Policies
    As a general rule, the Norwegian government does not subsidize 
exports, although some heavily subsidized goods, such as cheese, may be 
exported. The government indirectly subsidizes chemical and metal 
exports by subsidizing the electricity costs of manufacturers. In 
addition, the government provides funds to Norwegian companies for 
export promotion purposes. Norway is reducing its agricultural 
subsidies in stages over six years in accordance with its WTO 
obligations. Norway has also ratified the OECD shipbuilding subsidy 
agreement and has indicated it will eliminate shipbuilding subsidies 
after other major shipbuilders including the United States and Japan 
ratify the agreement.
7. Protection of U.S. Intellectual Property
    Norway is a signatory of the main intellectual property accords, 
including the Berne Copyright and Universal Copyright Conventions, the 
Paris Convention for the Protection of Industrial Property, and the 
Patent Cooperation Treaty. Any adverse impact of Norwegian IPR 
practices on U.S. trade is negligible.
    Norwegian officials believe that counterfeiting and piracy are the 
most important aspects of intellectual property rights protection. They 
complain about the unauthorized reproduction of furniture and appliance 
designs and the sale of the resultant goods in other countries, with no 
compensation to the Norwegian innovator.
    Product patents for pharmaceuticals became available in Norway in 
January 1992. Previously, only process patent protection was provided 
to pharmaceuticals.
8. Worker Rights
    a. Right of Association: Workers have the right to associate freely 
and to strike. The government can invoke compulsory arbitration under 
certain circumstances with the approval of parliament.
    b. The Right to Organize and Bargain Collectively: All workers, 
including government employees and the military, have the right to 
organize and to bargain collectively. Labor legislation and practice is 
uniform throughout Norway.
    c. Prohibition of Forced or Compulsory Labor: The Government of 
Norway prohibits forced and compulsory labor by law.
    d. Minimum Age for Employment of Children: Children are not 
permitted to work full time before age 18. However, children 13 to 18 
years may be employed part-time in light work that will not adversely 
affect their development.
    e. Acceptable Conditions of Work: Ordinary working hours do not 
exceed 37.5 hours per week, and four weeks plus three days of paid 
leave are granted per year. There is no minimum wage in Norway, but 
wages normally fall within a national wage scale negotiated by labor, 
employers, and the government. The Workers' Protection and Working 
Environment Act of 1977 assures all workers safe and physically 
acceptable working conditions.
    f. Rights in Sectors with U.S. Investment: Norway has a tradition 
of protecting worker rights in all industries, and sectors where there 
is heavy U.S. Investment are no exception.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  4,192
Total Manufacturing.........  ...........  810
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          19           .............................
   Products.
  Primary & Fabricated        9            .............................
   Metals.
  Industrial Machinery and    210          .............................
   Equipment.
  Electric & Electronic       7            .............................
   Equipment.
  Transportation Equipment..  -11          .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  325
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  609
 Estate.
Services....................  ...........  253
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  6,303
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 POLAND


                         Key Economic Indicators
        [In Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................   155,200    157,700    176,400
  Real GDP Growth (pct)................       4.1        4.8        2.0
  GDP by Sector (pct):
    Agriculture........................       4.5        2.9        N/A
    Manufacturing \2\..................      36.5       31.7        N/A
    Services...........................      46.3       53.1        N/A
    Government.........................      12.7       12.3        N/A
  Per Capita GDP (US$) \3\.............     4,014      4,082      4,564
  Labor Force (000s)...................    17,214     17,300        N/A
  Unemployment Rate Year-end (pct).....      13.1       15.0       17.0
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).............      19.3       11.8       15.0
  Consumer Price Inflation (annual            7.3       10.1        6.0
   average)............................
  Exchange Rate (PLN/US$; annual
 average):
    Official...........................      3.97       4.35       4.12
 
Balance of Payments and Trade:
  Total Exports FOB (US$ billions) \4\.      26.3       28.3       32.0
    Exports to United States (US$             0.8        1.0        1.1
     billions) \5\.....................
  Total Imports CIF (US$ billions).....      40.7       41.4       43.9
    Imports from United States (US$           0.8        0.7        1.0
     billions) \5\.....................
  Trade Balance (US$ billions).........     -14.4      -13.1      -11.9
    Balance with United States (US$           0.0        0.3        0.1
     billions) \5\.....................
  External Public Debt (US$ billions)..      32.1       33.0        N/A
  Fiscal Deficit/GDP (pct).............       2.0        2.2        4.0
  Current Account Surplus/Deficit/GDP        -7.5       -6.3       -5.8
   (pct) \6\...........................
  Debt Service Payments/GDP (pct) \7\..       3.4        4.0        4.5
  Gold and Foreign Exchange Reserves         27.3       25.5       28.0
   (US$ billions) \8\..................
  Aid from United States (US$ millions)      26.3       10.0       70.0
   \9\.................................
  Aid from Other Sources (US$ millions)       300        820        900
   \10\................................
------------------------------------------------------------------------
\1\ Polish government estimates as of August 2001, unless otherwise
  noted.
\2\ Manufacturing including construction.
\3\ Per capita GDP given in nominal terms.
\4\ Polish government trade figures, without transshipments via third
  countries.
\5\ U.S. Dept. of Commerce and U.S. Census Bureau; exports FAS, imports
  customs basis.
\6\ Including estimated unrecorded trade.
\7\ Debt service includes paid interest and principal.
\8\ Data available through August 2001.
\9\ U.S. government estimate; includes economic and military assistance.
  In 2000, the United States provided Poland with law enforcement and
  export control programs worth about $1 million, military assistance
  programs totaling about $12.2 million, and excess defense articles
  valued at about $56 million.
\10\ EU declared assistance; includes PHARE; 2001 includes ISPA and
  SAPARD.


1. General Policy Framework
    Over the past decade, Poland has transformed its economy with 
generally sound macroeconomic management and a commitment to structural 
reforms, making it one of the most successful and open transition 
economies. After four consecutive years of annual six to seven percent 
growth, the Polish economy slowed in 1998, in large part due to the 
Asian and Russian crises. Since then, Poland's economy has grown more 
slowly due to declining domestic demand (both consumption and 
investment); GDP growth for 2001 is estimated at below two percent. 
Over the last decade, the private sector has grown as a result of 
privatization and liberalization, but many of the larger, publicly-
owned enterprises inherited from the communist era, notably those in 
such sectors as coal mining, steel, and rail transport, remain in need 
of further restructuring. Polish agriculture sector remains handicapped 
by surplus labor, inefficient small farms, and lack of investment. 
Government estimates indicate the shadow ``gray economy'' now generates 
around 15-16 percent of GDP.
    Government Priorities: A member of the WTO, OECD, and NATO, Poland 
now considers membership in the European Union (EU) one of its highest 
priorities. The process (supported by a majority of Poles) affects most 
economic policies, from the budget to reforms. By fall 2001, Poland had 
provisionally closed 17 of 29 negotiating chapters. Poland hopes to 
close the remaining chapters by the end of 2002, in time for accession 
on January 1, 2004. Poland continues to liberalize its trade and 
investment regimes through international (WTO, OECD), regional (Central 
European Free Trade Agreement or ``CEFTA''), and various bilateral 
agreements. Poland also seeks improvement in bilateral economic 
relations with Russia, Ukraine, and China.
    Fiscal Policy: Reforming Poland's public finances is one of the 
highest priority challenges facing the government elected in September 
2001. While Poland's central government debt, at 40 percent of GDP, 
remains moderate, the combination of slower economic growth and new 
spending commitments enacted by the parliament in recent years has put 
the budget under strain. The original draft forecast for the 2002 
government deficit, before corrective measures, was over ten percent of 
GDP. The government is seeking to cap the deficit at five percent. New 
public borrowing has been limited in recent years due to sizeable 
privatization revenues. However, the number of companies to be 
privatized is shrinking rapidly and revenues from this source will dry 
up within the next few years, forcing action to curb the budget deficit 
to prevent the government debt ratio from approaching the 
constitutional limit of 60 percent of GDP. The constitution prohibits 
the National Bank of Poland (NBP) from financing the budget deficit. 
The government's flexibility in curbing public spending is limited, 
however, by Poland's generous social insurance system (retirement, 
disability, unemployment, and welfare benefits), debt service 
obligations, and the costs of the four major reforms (affecting the 
health, education, pension, and administrative systems) implemented in 
1998-99. Poland's overall public spending is governed by the 1998 Act 
on Public Finances, which clarifies the responsibilities of the various 
budgetary players, sets measures to improve the transparency of public 
finances, establishes rules for local governments, and prepares for 
Poland's EU accession. It also establishes procedures to be followed if 
total public debt, including government guarantees, exceeds certain 
limits.
    Monetary Policy: An independent, 10-member Monetary Policy Council 
(MPC) sets monetary policy, which is implemented by the NBP, using a 
formal inflation target. Increasingly restrictive fiscal and monetary 
policies reduced annual average inflation from 37 percent in 1993 to 
10.1 percent in 2000. In 1999, average CPI inflation was 7.3 percent, 
but an acceleration in late 1999 and early 2000 led the MPC to miss its 
targets in both years. In response, monetary policy was tightened 
significantly, with the MPC raising rates by a total of six percentage 
points from late 1999 to the fall of 2000. As a result of both tighter 
money and the slowing economy, inflation has dropped significantly, 
with the estimated CPI increase for 2001 of 4.7 percent, below the 
MPC's six-to-eight percent target range. The target for 2002 is five 
percent and that for 2003 is below four percent. Despite substantial 
reductions in nominal interest rates in 2001 (a cumulative 6.0 
percentage points through October), real interest rates have remained 
high, dampening economic growth and keeping the Polish zloty relatively 
strong.
2. Exchange Rate Policies
    On April 12, 2000, the NBP abandoned the crawling peg it had used 
since 1991 and allowed the zloty to float freely. The decision was in 
line with government plans to let the zloty find its equilibrium level 
before applying for participation in the European Exchange Rate 
Mechanism and then the European Monetary Union. As the zloty had been 
floating within the 15 percent band for several years without NBP 
intervention, the decision to float did not have a significant impact 
on the foreign exchange market. The government reserves the right to 
intervene in the market to prevent destabilizing swings.
    Poland achieved current account convertibility in 1995, eliminated 
the requirement for Polish firms to convert their foreign currency 
earnings into zlotys in 1996, removed most limits on capital account 
outflows by Polish citizens in 1997, and enforced a new foreign 
exchange law in January 1999. Restrictions were removed on foreign 
exchange transactions for resident portfolio investments, investment in 
securities issued in OECD countries, and operations in negotiable 
securities, including collective investment securities, with some 
exceptions, such as transactions in debt instruments with a maturity of 
less than one year and derivatives. The law authorizes further 
liberalization measures, but also contains safeguards to allow the 
government to temporarily re-establish restrictions under certain 
circumstances, such as extraordinary risk to the stability and 
integrity of the financial system. Poland's remaining restrictions on 
capital movements, other than foreign direct investment flow and short-
term capital flow, are limited to real estate investment abroad and in 
Poland. The remaining restrictions on foreign direct investment concern 
foreign acquisitions of certain categories of real estate, indirect 
ownership of Polish insurance companies, air and shipping transport, 
broadcasting, certain telecommunication services, and gaming.
3. Structural Policies
    Prices: Most price subsidies and controls disappeared during 
Poland's 1990 economic shock therapy, although those on public 
transportation, coal, and some pharmaceuticals continue. The government 
hopes eventually to eliminate all controls, providing interim support 
for coal and some agricultural products, and allowing new regulatory 
bodies to play a central role in setting prices in the energy and 
telecommunications sectors. The government has also taken steps to 
promote greater competition in the Polish markets for oil and 
telecommunications services, where price rises contribute considerably 
to inflation.
    Taxes: Poland's total tax burden, at 41 percent of GDP, is 
comparable to that of many Western European countries. However, only 
about half of this amount is collected by the central government, with 
the remainder going to the social insurance system, local governments, 
and various special-purpose extra-budgetary funds. A tax reform package 
approved in late 1999 significantly reduced corporate income taxes and 
streamlined exemptions. Value-Added Tax (VAT) rates were also revised 
to meet EU rules, but a companion bill to reduce and simplify personal 
income taxes was vetoed by the president. The corporate income tax rate 
was reduced to 30 percent in 2000, 28 percent in 2001, 24 percent in 
2003, and 22 percent in 2004. Personal income tax rates remain 
unchanged at 19, 30, and 40 percent. The new government, which took 
office in October 2001, is expected to introduce changes to the tax 
system and undertake deep reforms of public finances. Under pressure 
from the EU, Poland amended the rules governing special economic zones 
(SSEs) that permit tax breaks for foreign investment. These new 
regulations are less advantageous for investors than the old rules, but 
more compliant with EU mandates. Under the new regulations, which 
entered into force January 1, 2001, new companies registered in SSEs 
are eligible to receive grants amounting up to 50 percent of initial 
capital. The new regulations are not retroactive.
    Regulatory Policies: Poland's regulatory regime is being harmonized 
with EU standards. Existing regulatory structures are variously faulted 
for the excessive burden imposed on businesses, lack of transparency 
and predictability, and lack of effectiveness. An independent regulator 
for the telecommunications sector began functioning in 2001. Current 
concerns include product certification standards and pharmaceutical 
registration and pricing mechanisms, which effectively impede market 
access.
4. Debt Management Policies
    Poland improved its foreign debt situation through rescheduling 
agreements with the Paris Club (1991) and the London Club (1994), which 
reduced Poland's debt by nearly half. As of July 2001, Poland's total 
official foreign debt was $28.2 billion, including $20.1 billion to the 
Paris Club, $2.2 billion to other institutions (IMF, World Bank, EBRD 
and BIS), $4.1 billion in Brady Bonds, and $1.7 billion in other 
foreign bonds. Since 1995, Poland has held investment grade ratings 
from various agencies and has been a net borrower on the world capital 
markets at a small premium over German bond rates. In September 2001, 
Poland had a Moody's rating of Baa1 and a Standard and Poor's rating of 
BBB+ (stable outlook). Debt servicing remains relatively low both in 
relation to government expenditure (12-14 percent) and GDP (3 percent), 
although amortization payments are scheduled to rise significantly in 
the next few years. Foreign debt servicing represents a sustainable 
proportion of exports of goods and services. As of mid-2001, the 
private sector had an estimated $30 billion in foreign debt. The share 
of short-term foreign debt in Poland's total foreign debt oscillates 
around 13.5 percent and has remained almost unchanged since 2000. 
Poland's total state debt (foreign and domestic) amounted to 40 percent 
of GDP in July 2001. The Ministry of Finance plans to establish a 
public debt risk management agency similar to those operating in other 
OECD-countries.
5. Significant Barriers to U.S. Exports
    Tariffs: Poland's tariff policy reflects a trend toward 
liberalization as required by its WTO commitments and a strong bias in 
favor of its regional free trade partners (EU, EFTA, CEFTA, Estonia, 
Latvia, Lithuania, Israel, and Turkey). In 2000, duty-free industrial 
imports from the EU and Poland's free trade partners accounted for 72.3 
percent of total industrial imports. By the end of 2000, Poland had 
eliminated most tariffs and trade barriers on industrial goods from the 
EU and EFTA countries (except cars and steel products). Poland and the 
EU agreed in 2000 to eliminate tariffs on a range of unprocessed 
agricultural goods and are negotiating a similar agreement on processed 
agricultural products. The reduction or elimination of tariff and trade 
barriers with other free trade partners is also continuing. U.S. 
exporters in a broad range of industry sectors have complained that the 
growing differences between Most Favored Nation (MFN) tariffs applied 
to U.S. goods and preferential tariffs applied to goods from the EU and 
Poland's free trade partners have diminished their business prospects 
and ability to compete on the Polish market. While giving the EU and 
its free trade partners preferential access, Poland has maintained MFN 
tariffs at levels that often exceed the EU common external tariff rates 
that Poland must adopt upon joining the EU. Thus, many U.S. firms face 
a bigger competitive disadvantage in Poland than in the EU. The U.S. 
and Polish governments have been engaged for some years in an effort to 
address this and other bilateral trade issues. In June 2001, they 
agreed to a package of measures including the suspension in 2002 of 
Polish tariffs on a limited range of industrial and agricultural goods 
of interest to U.S. exporters, continued U.S. support for Poland's 
participation in the Generalized System of Preferences (GSP) program 
until it joins the EU, and the creation of a formal dialogue for 
addressing bilateral trade concerns.
    Import Licenses: Licenses are required for strategic goods on 
Wassenaar dual use and munitions lists, as well as for fuel and 
tobacco. Imports of U.S. grain and oilseed imports, which had amounted 
to some $100 million in 1997, are blocked by Poland's zero tolerance 
phytosanitary inspection policy for several common weed seeds. 
Scientific evidence indicates that such weed seeds already exist in 
Poland and neighboring countries, yet Polish authorities have been 
unwilling to relax their zero tolerance policy. While neighboring EU 
countries do not have a zero tolerance policy on weed seeds, it remains 
unclear whether Poland will be required to adopt the less restrictive 
EU tolerance levels when it joins the EU. Certificates from the United 
States Department of Agriculture are required for meat, dairy products 
and live animals. Poland banned imports of meat and bone meal (MBM) in 
February 2001from countries that have Bovine Spongiform Encephalopathy 
(BSE). Previously, Poland had annually imported upwards of 300,000 tons 
of MBM valued at $100 million, virtually all from the EU. Poland 
refused to permit imports of U.S. MBM as an alternative, despite the 
fact that the United States has no reported cases of BSE, unless U.S. 
MBM undergoes more costly heat and pressure treatments outlined in 
European Commission decision 96/449/EC. Poland also banned imports of 
gelatin of bovine origin from all countries in February 2001 because of 
BSE concerns. Poland implemented regulations on biotechnology and 
genetically modified organisms (GMO), following EU norms in mid-2001.
    Services Barriers: Poland has made progress, but many barriers 
remain, especially in audiovisuals, legal services, financial services, 
and telecommunications. In November 1997, the government enacted a 
rigid 50 percent European production quota for all television 
broadcasters, raising concerns about liberalization commitments made by 
Poland upon joining the OECD. However, legislation passed by the 
Parliament in 2000 requires broadcasters to meet the 50 percent quota 
only where practical, thereby bringing Polish regulations into line 
with EU directives. In January 1998, new laws on banking and the 
central bank came into force. As a condition of its accession to the 
OECD, Poland allowed firms from OECD countries to open branches and 
representative offices in the insurance and banking sector in 1999, as 
well as subsidiaries of foreign banks. The government began to sell 
stakes in the state telecommunications monopoly (TPSA) in October 1998, 
and agreed to open domestic long-distance service to competition in 
1999 and international services in 2003. Parastatal enterprise France 
Telecom became TPSA's largest shareholder in 2001, but the government 
still retains significant control. Several competitors now provide 
local phone service and domestic long distance service. Thus far, 
government regulatory agencies' efforts to curb anti-competitive 
behavior by TPSA, which retains a monopoly over interconnection and 
international long distance, have been insufficient.
    Standards, Testing, Labeling, and Certification: Harmonization of 
standards, certification, and testing procedures with those of the EU, 
including greater reliance on voluntary standards, is now the main 
objective of Polish standards policy. Under the 1997 European 
Conformity Assessment Agreement, Poland agreed to introduce an EU-
compatible certification system; to gradually align its regulations and 
certification procedures with the those of the EU; to remove from 
mandatory certification those products free from certification 
requirements in the EU; and to automatically provide a ``B'' safety 
certificate to EU products subject to mandatory certification. However, 
there have been delays in implementing these commitments. Currently, 
products manufactured in Poland or imported into Poland for the first 
time that can be of potential danger or serve to protect or save 
health, life or environment, are subject to certification with a 
reserved safety mark of Polish Research and Certification Center or to 
issuance by the manufacturer at his risk a declaration of compliance. A 
Polish ``B'' safety certificate has been required since 1997 for 
imports and domestic products and affects about one third of all 
products marketed in Poland. Poland does not automatically accept the 
EU ``CE'' mark or other international product standards. Non-acceptance 
of many international standards, certification, and conformity testing 
procedures are associated with long delays, involving expensive testing 
processes. Poland has bilateral mutual recognition agreements on 
standards and conformity testing procedures with Ukraine, China, 
Belarus, Germany, the Czech Republic, the Russian Federation, Italy, 
and Switzerland, which allow the importation of certain products from 
these countries based on conformity statements issued by the foreign 
producer. Phytosanitary standards on weed seeds have had a major 
adverse impact on the ability of U.S. farmers to export grains to 
Poland. Pharmaceuticals and medical materials are subject to entry in 
the Register of Pharmaceuticals and Medical Materials, which requires 
positive results of laboratory tests.
    Investment Barriers: Lack of transparency and clearly stated rules 
in government decision-making processes, as well as outright 
corruption, are widely recognized as informal barriers to foreign 
investment. Polish law permits 100 percent foreign ownership of most 
corporations. However, some restrictions remain on foreign investment 
in certain ``strategic sectors,'' such as mining, steel, defense, 
transport, and energy, while certain controls remain on other foreign 
investment. Broadcasting law still restricts foreign ownership to 33 
percent, while foreign ownership of air transport is confined to 49 
percent. The cap on foreign ownership in telecommunications was lifted 
on January 1, 2001. No foreign investment is currently allowed in 
gambling. The privatization of the energy, steel, and 
telecommunications sectors envisions significant foreign investment, as 
does a restructuring plan for the defense industry. The privatization 
process lacks transparency and relatively few U.S. firms have shown 
interest in investing in state-owned firms, in part because of 
transparency concerns but also because of the unstable regulatory 
environment. As a result of OECD accession, foreigners in Poland may 
purchase up to 4,000 square meters of urban land or up to one hectare 
of agricultural land without a permit. Larger purchases, or the 
purchase of a controlling stake in a Polish company owning real estate, 
require approval from the Ministry of Interior and the consent (not 
always automatic) of both the Defense and Agriculture Ministries.
    Government Procurement Practices: Poland's government procurement 
law is modeled on the UN procurement code and is based on competition, 
transparency, and public announcement, but does not cover most 
purchases by stateowned enterprises. In actual practice, many 
government procurements are carried out in a non-transparent manner 
that has produced highly publicized accusations of corruption. The 
exception for state-owned enterprises is a loophole that often produces 
questionable tender results. Single source exceptions to the stated 
preference for unlimited tender are allowed only for reasons of state 
security or national emergency. The domestic performance section in the 
law requires 50 percent domestic content and gives domestic bidders a 
20 percent price preference. Companies with foreign participation may 
qualify for ``domestic'' status. There is also a protest/appeals 
process for tenders thought to be unfairly awarded. Since September 
1997, Poland has been an observer to the WTO's Government Procurement 
Agreement (GPA). In order to accede to the GPA in accordance with its 
EU accession requirements, Poland is expected to start GPA accession 
negotiations in 2002. In June 2001, the Law on Public Procurement has 
been amended to conform to the EU regulations.
    Customs Procedures: Since signing the GATT customs valuation code 
in 1989, Poland has a harmonized tariff system. The customs duty code 
has different rates for the same commodities, depending on the point of 
export. Poland's Association Agreement with the EU, the CEFTA 
agreement, FTAs with Israel, Croatia, Latvia, Estonia, Lithuania, and 
Turkey, as well as GSP for developing countries, grant firms from these 
areas certain tariff preferences over U.S. competitors. Some U.S. 
companies have criticized Polish customs' performance, citing long 
delays, indifference, corruption, incompetent officials, and 
inconsistent application of customs rules. A new customs law took 
effect in January 1998, but some problems remain, including the amount 
of paperwork required and the lack of electronic clearance procedures. 
A new, EU-compatible tariff classification system to be introduced in 
January 2002 may cause some initial confusion.
6. Export Subsidies Policies
    With its 1995 WTO accession, Poland ratified the Uruguay Round 
Subsidies Code and eliminated earlier practices of tax incentives for 
exporters, but it still offers drawback levies on raw materials from EU 
and CEFTA countries which are processed and re-exported as finished 
products within 30 days. Some politically powerful stateowned 
enterprises continue to receive direct or indirect production subsidies 
to lower export prices. Polish industry and exporters criticize the 
government for too little export promotion support. Poland's export 
insurance agency has limited resources and rarely guarantees contracts 
to highrisk countries such as Russia, placing Polish firms at a 
disadvantage to most western counterparts.
7. Protection of U.S. Intellectual Property
    While Poland has significantly improved its legal framework for 
intellectual property rights protection, this progress is overshadowed 
by insufficient enforcement and recent moves to abolish the 
confidentiality of proprietary test data for pharmaceutical drugs 
(``data exclusivity''). The U.S.-Polish Bilateral Business and Economic 
Treaty contains provisions for the protection of U.S. intellectual 
property. It came into force in 1994, once Poland passed a new 
Copyright Law that offers strong criminal and civil enforcement 
provisions and covers literary, musical, graphical, software, and 
audio-visual works, as well as industrial patterns. Amendments to the 
Copyright Law, designed to bring it fully into compliance with Poland's 
TRIPS obligations, were enacted in July 2000. The amendments provide 
full protection of all pre-existing works and sound recordings. 
Amendments designed to bring the Industrial Property Law, which 
protects patents and trademarks, into compliance with TRIPS obligations 
were implemented in August 2001.
    Poland suffers from high rates of piracy, in large part due to weak 
control of its eastern border and reluctance to clean up or shutdown 
large outdoor markets. Most pirated materials available, particularly 
CDs and CD-ROMs, are produced in the former Soviet Union and Romania. 
With better laws in place and improved cooperation between government 
and industry, enforcement has improved in recent years. Nevertheless, 
the cumbersome judicial system and the general lack of knowledge about 
IPR remain impediments. Criminal penalties increased and procedures for 
prosecution were somewhat simplified when the amendments to the 
Copyright Law took effect. Industry associations estimate 2000 levels 
of piracy in Poland to be: 33 percent for sound recordings, 25 percent 
for motion pictures, 54 percent for business software, and 85 percent 
for entertainment software. Poland is currently on the ``Special 301 
Watch List'' due primarily to ineffective enforcement.
    Separately, pharmaceutical producers are affected by substandard 
data exclusivity and patent protection for their products. Until late 
2001, test data submitted to the government to register a drug 
generally received three years of data exclusivity. However, in a 
number of cases, the data exclusivity period was actually less. In a 
turn for the worse, Parliament passed and the President signed new EU 
accession related legislation in fall 2001 that, among other things, 
abolishes the period of data exclusivity until Poland joins the EU. 
This law clearly violates Poland's WTO TRIPS commitments and stands to 
have a negative impact on foreign R&D pharmaceutical companies 
operating in Poland. The U.S. government is actively engaged with the 
Polish government in an effort to restore the period of data 
exclusivity. To join the EU, Poland will also have to change its law to 
provide for supplemental protection certificates (patent extensions). 
The adoption of EU compatible patent legislation and the re-
registration of Polish pharmaceuticals according to EU-compatible 
criteria are problematic issues in Poland's accession process.
 8. Worker Rights
    Poland's 1996 Labor Code sets out the rights and duties of 
employers and employees in modern, free-market terms.
    a. The Right of Association: Polish law guarantees all civilian 
workers, including military employees, police officers, and border 
guards, the right to establish and join trade unions of their own 
choosing, and the right to join labor organizations and to affiliate 
with international labor confederations. The number of unions has 
remained steady over the past several years, although membership 
appears to be declining.
    b. The Right to Organize and Bargain Collectively: The laws on 
trade unions and resolution of collective disputes generally create a 
favorable environment to conduct trade union activity, although 
numerous cases have been reported of employer discrimination against 
workers seeking to organize or join unions in the growing private 
sector.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor does 
not exist, except for prisoners convicted of criminal offenses.
    d. Child Labor Practices: Polish law strictly prescribes conditions 
under which children may work and sets the minimum age at 15. Forced 
and bonded child labor is effectively prohibited. The State Labor 
Inspectorate reported increasing numbers of working children and 
violations by employers who underpay or pay late.
    e. Acceptable Conditions of Work: Unions agree that the problem is 
not in the law, which provides minimum wage and minimum health and 
safety standards, but in insufficient enforcement by too few labor 
inspectors.
    f. Rights in Sectors with U.S. Investment: Firms with U.S. 
investment generally meet or exceed the above five worker rights 
standards. In the last several years, there have been only a few cases 
where Polish unions have charged such companies with violating Polish 
labor law, and cases have been largely resolved. Existing unions 
usually continue to operate in Polish enterprises that are bought by 
American companies, but there tend to be no unions where U.S. firms 
build new facilities.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  4
Total Manufacturing.........  ...........  1,171
  Food & Kindred Products...  106          .............................
  Chemicals & Allied          367          .............................
   Products.
  Primary & Fabricated        56           .............................
   Metals.
  Industrial Machinery and    -4           .............................
   Equipment.
  Electric & Electronic       1            .............................
   Equipment.
  Transportation Equipment..  5            .............................
  Other Manufacturing.......  640          .............................
Wholesale Trade.............  ...........  335
Banking.....................  ...........  1,014
Finance/Insurance/Real        ...........  89
 Estate.
Services....................  ...........  20
Other Industries............  ...........  110
    Total All Industries....  ...........  2,743
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                PORTUGAL


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................     114.2      104.9      109.0
  Real GDP Growth (pct) \2\ \3\........       3.1        3.3        1.7
  GDP by Sector: \4\
    Agriculture........................       4.3        4.0        3.9
    Industry...........................      29.5       29.3       29.3
    Services...........................      66.2       66.7       66.8
    Government.........................      44.7       44.6       46.0
  Per Capita GDP (US$) \2\.............    11,420     10,490     10,583
  Labor Force (000's)..................     5,057      5,097      5,187
  Unemployment Rate (pct)..............       4.5        3.8        3.9
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2)....................       9.5        5.2        6.4
  Consumer Price Inflation.............       2.4        2.3        4.3
  Exchange Rate (PTE/US$ annual               188        218        224
   average)............................
 
Balance of Payments and Trade:
  Total Exports FOB \4\................      23.9       23.2       22.8
    Exports to United States \5\.......       1.2        1.6        1.7
  Total Imports CIF \4\................      38.6       38.1       35.3
    Imports from United States \5\.....       1.0        1.0        1.3
  Trade Balance........................     -14.7      -14.9      -12.5
    Balance with United States.........       0.2        0.6        0.4
  External Public Debt.................       N/A        N/A        N/A
  Fiscal Deficit/GDP (pct) \2\.........       1.7        1.4        1.1
  Current Account Deficit/GDP (pct)....       8.4       10.0       10.1
  Debt Service Payments/GDP (pct)......       N/A        N/A        N/A
  Gold and Foreign Exchange Reserves...      14.1       14.2       13.9
  Aid from the United States...........         0          0          0
  Aid from All Other Sources...........       N/A        N/A        N/A
------------------------------------------------------------------------
\1\ 2001 figures are estimates based on available data in October; some
  previous year figures have been revised.
\2\ Portuguese Ministry of Finance.
\3\ Percentage changes calculated in local currency.
\4\ Portuguese Ministry of the Economy.
\5\ Department of Commerce.


1. General Policy Framework
    Prior to the 1974 Portuguese revolution, Portugal was one of the 
poorest and most isolated countries in Western Europe. In the twenty-
seven years since, however, the country has undergone fundamental 
economic and social changes that have resulted in substantial 
convergence with its wealthier European neighbors. Joining the European 
Union in 1986 was a primary factor in this progress. The country has 
not only enjoyed growing trade ties with the rest of Europe, but has 
been one of the continent's primary beneficiaries of EU structural 
adjustment funds. The last twenty-seven years have witnessed not only 
economic growth, but also significant structural changes. An economy 
that was once rooted in agriculture and fishing has developed into one 
driven by manufacturing and, increasingly, by the service sector.
    Portugal has experienced a broad-based economic expansion since 
1993. Much of this growth can be linked to the country's successful 
efforts to join the European monetary union (EMU), which was formally 
established at the beginning of 1999. To qualify for EMU, Portugal took 
steps to reduce its fiscal deficit and implement structural reforms. As 
a result, the country has benefited from currency stability, moderate 
inflation rates and stable interest rates. Lower interest rates have 
reduced the government's interest expenditures and made it easier to 
meet its fiscal targets. The broader economy has been stimulated by a 
boom in consumer spending brought on by lower interest rates and 
greater availability of credit. Although the Portuguese economy has 
continued to expand over the past year, the rate of growth has 
moderated, and is forecast to be lower than the EU average for the 
coming year.
    Although the economy is generally healthy, there is some concern 
among economists that the current expansion shows signs of overheating. 
One manifestation of the growth in consumption has been a rise in 
household debt: from less than 20 percent of disposable income in 1990, 
to a projected 100 percent of disposable income by the end of 2001. 
Other manifestations include an inflation rate that is persistently 
higher than the Euro-zone average, a large and growing current account 
deficit, and a sharp rise in real estate prices. With monetary union, 
Portugal no longer has the ability to craft a monetary response to the 
situation. Moreover, the government has found it difficult to impose 
fiscal restraint; government spending continues to rise as a percent of 
GDP.
2. Exchange Rate Policy
    On January 1, 1999, Portugal and 10 other European countries 
entered the European monetary union; the escudo exchange rate is fixed 
at 200.482 Portuguese escudos being equal to one euro. Future exchange 
rate policy for the Euro-zone countries will be governed by the 
European Central Bank.
3. Structural Policies
    Portugal has generally been successful in liberalizing its economy. 
The country has used a large proportion of the over 20 billion-dollar 
EU-backed regional development financing for new infrastructure 
projects. These projects have included new highways, urban renewal for 
the site of Lisbon-based EXPO 98, rail modernization, subways, dams, 
and water treatment facilities.
    Portugal has also pursued an aggressive privatization plan for 
state-owned companies. In 1988, state-owned enterprises accounted for 
19.4 percent of GDP and 6.4 percent of total employment. By 1997, these 
had fallen to 5.8 percent and 2.2 percent, respectively, and the 
country has continued its aggressive privatization schedule. By the end 
of 1999, total privatization receipts reached $23.5 billion. Former 
state-controlled companies now account for the bulk of the market 
capitalization of the Lisbon stock exchange and several of them have 
taken steps to expand their investments overseas. Notably, EDP 
(electricity) and Portugal Telecom (telecommunications) have made major 
investments in their respective sectors in Brazil.
    The government has recently instituted a number of tax reform 
measures, embodied in both the December 2000 Tax Reform Act and the 
2001 Budget Law. These initiatives recognize the need to widen the tax 
base, improve tax administration, and harmonize policies with other EU 
jurisdictions. A new tax administration body, the General Tax 
Administration, was created in September 1999, to coordinate the 
auditing, training and planning of the individual tax directorates. 
Supplementary professional qualification is being provided by the Tax 
Training Institute, and several hundred new inspectors have been hired.
4. Debt Management Policies
    Following the removal of capital controls in 1992, lower interest 
rates abroad led to a shift towards a greater reliance on the use of 
foreign public debt, which rose to 15 percent of GDP by 1998. That 
debt, however, has yielded benefits in the form of longer debt 
maturities and lower costs for domestic debt. As a result, interest 
expenditure on public debt fell from 6.2 percent of GDP in 1994 to an 
estimated 3.2 percent of GDP in 2000.
5. Significant Barriers to U.S. Exports
    Within the European Union, the European Commission has authority to 
develop most aspects of EU-wide external trade policy, and most trade 
barriers faced by U.S. exporters in EU member states are the result of 
common EU policies. Such trade barriers include: the import, sale and 
distribution of bananas; restrictions on wine exports; local (EU) 
content requirements in the audiovisual sector; standards and 
certification requirements (including those related to aircraft and 
consumer products); product approvals and other restrictions on 
agricultural biotechnology products; sanitary and phytosanitary 
restrictions (including a ban on import of hormone-treated beef); 
export subsidies in the aerospace and shipbuilding industries; and 
trade preferences granted by the EU to various third countries. A more 
detailed discussion of these and other barriers can be found in the 
country report for the European Union.
    The EU Customs Code was fully adopted in Portugal as of January 1, 
1993. Special tariffs exist for tobacco, alcoholic beverages, petroleum 
and automotive vehicles. Portugal is a member of the World Trade 
Organization.
    Because Portugal is a member of the EU, the majority of imported 
products enjoy liberal import procedures. However, import licenses are 
required for agricultural products, military/civilian dual use items, 
some textile products and industrial products from certain countries 
(not including the United States). Imported products must be marked 
according to EU directives and Portuguese labels and instructions must 
be used for products sold to the public.
    Portugal welcomes foreign investment and foreign investors need 
only to register their investments, post facto, with the Foreign Trade, 
Tourism, and Investment Promotion Agency. However, Portugal limits the 
percentage of non-EU ownership in civil aviation, television 
operations, and telecommunications sectors. In addition, the creation 
of new credit institutions or finance companies, acquisition of a 
controlling interest in such financial firms, and establishment of 
subsidiaries require authorization by the Bank of Portugal (for EU 
firms) or by the Ministry of Finance (for non-EU firms).
    With respect to the privatization of state-owned firms, Portuguese 
law currently allows the Council of Ministers to specify restrictions 
on foreign participation on a case-by-case basis. Portuguese 
authorities tend, as a matter of policy, to favor national groups over 
foreign investors in order to ``enhance the critical mass of Portuguese 
companies in the economy.''
    Portuguese law does not discriminate against foreign firms in 
bidding on EU-funded projects. Nevertheless, as a practical matter, 
foreign firms bidding on EU-funded projects have found that having an 
EU or Portuguese partner enhances their prospects. For certain high-
profile direct imports; i.e., aircraft, the Portuguese government has 
shown a political preference for EU products (Airbus).
    Companies employing more than five workers must limit foreign 
workers to 10 percent of the workforce, but exceptions can be granted 
for workers with special expertise. EU and Brazilian workers are not 
covered by this restriction.
    Portugal maintains no current controls on capital flows. The Bank 
of Portugal, however, retains the right to impose temporary 
restrictions in exceptional circumstances and the import or export of 
gold or large amounts of currency must be declared to customs.
6. Export Subsidies Program
    Portugal's export subsidies programs appear to be limited to 
political risk coverage for exports to high-risk markets and credit 
subsidies for Portuguese firms expanding their international 
operations.
7. Protection of U.S. Intellectual Property
    Trademark Protection: Portugal is a member of the International 
Union for the Protection of Industrial Property (WIPO) and a party to 
the Madrid Agreement on International Registration of Trademarks and 
Prevention of the Use of False Origins. Portugal's current trademark 
law entered into force on June 1, 1995. The law, however, is not 
considered to be entirely consistent with the terms of the trade 
related intellectual property provisions of GATT (TRIPS).
    Copyright Protection: Portugal is finishing the process of adopting 
EU directives in the form of national legislation. Most recently, the 
country adopted the EU directive on protection of data bases (Decree 
Law 122/2000, July 4, 2000). Software piracy remains a problem, 
however.
    Patent Protection: Currently, Portugal's patent protection is 
afforded by the Code of Industrial Property that went into effect on 
June 1, 1995. In 1996, new legislation was passed to extend the life of 
then-valid patents to 20 years, consistent with the provisions of 
TRIPS. The current code, however, remains inconsistent with TRIPS in 
certain regards. Portugal's perceived weak protection for test data, 
coupled with high registration costs, have restricted the introduction 
of new drugs into the country.
8. Worker Rights
    a. The Right of Association: Workers in both the private and public 
sectors have the right to associate freely and to establish committees 
in the workplace to defend their interests. The Constitution provides 
for the right to establish unions by profession or industry. Trade 
union associations have the right to participate in the preparation of 
labor legislation. Strikes are constitutionally permitted for any 
reason; including political causes; they are common and are generally 
resolved through direct negotiations. The authorities respect all 
provisions of the law on labor rights.
    Two principal labor federations exist. There are no restrictions on 
the formation of additional labor federations. Unions function without 
hindrance by the government and are affiliated closely with the 
political parties.
    b. The Right to Organize and Bargain Collectively: Unions are free 
to organize without interference by the government or by employers. 
Collective bargaining is provided for in the Constitution and is 
practiced extensively in the public and private sectors.
    Collective bargaining disputes are usually resolved through 
negotiation. However, should a long strike occur in an essential sector 
such as health, energy or transportation, the government may order the 
workers back to work for a specific period. The government has rarely 
invoked this power, in part because most strikes are limited to one to 
three days. The law requires a ``minimum level of service'' to be 
provided during strikes in essential sectors, but this requirement has 
been applied infrequently. When it has, minimum levels of service have 
been established by agreement between the government and the striking 
unions, although unions have complained, including to the International 
Labor Organization, that the minimum levels have been set too high. 
When collective bargaining fails, the government may appoint a mediator 
at the request of either management or labor.
    The law prohibits antiunion discrimination, and the authorities 
enforce this prohibition in practice. The General Directorate of Labor 
promptly examines complaints.
    There are no export processing zones.
    c. Prohibition of Forced or Compulsory Labor: Forced labor, 
including by children, is prohibited and does not occur.
    d. Minimum Age for Employment of Children: The minimum working age 
is 16 years. There are instances of child labor, but the overall 
incidence is low and is concentrated geographically and sectorally.
    The Government of Portugal is fighting child labor through the 
office known as PEETI (Plan for Eliminating Exploitation of Child 
Labor), which was established by legislation passed in July 1998, and 
falls under the jurisdiction of the Ministry of Labor and Solidarity. 
The group collaborated with the ILO in 1998 and 1999 in a first of its 
kind survey to try to ascertain the extent of child labor in Portugal. 
The survey, which polled thousands of students and their parents, 
indicates that there are between 18,000 and 34,000 children who perform 
some kind of work in Portugal. The survey also indicates, however, that 
the majority of these situations constitute children working for their 
parents on family-owned farms, in which the labor does not interrupt 
education. Portugal ratified ILO Convention 182 on June 1, 2000.
    PEETI has called for stronger domestic legislation specifying the 
minimum age for employment, to be applied to all sectors of the 
economy. The organization also supports legislation which will extend 
labor laws to include all work done that has an economic value, even 
that done for family-owned businesses and farms. Finally PEETI is 
pushing legislation which makes it a felony to continue to employ 
minors once a firm has been notified of a violation.
    Portugal has a regular system of unannounced inspections of firms 
by the Inspectorate General of Labor to check for the illegal 
employment of minors. Many current violations of labor laws, however, 
are thought to occur in the home, where children are engaged on a 
``piece-work'' basis in the clothing and footwear sectors and where 
labor inspectors do not have authority to inspect. To fight this 
phenomenon, the Government of Portugal has begun a program of 
unannounced inspections involving representatives of the Inspectorate 
General of Labor, the Social Security Inspection Services, and a 
representative of the court.
    e. Acceptable Conditions of Work: Minimum wage legislation covers 
full-time workers as well as rural workers and domestic employees ages 
18 years and over. For 2001, the monthly minimum wage was raised to 
67,000 escudos/month (approximately $305 at current exchange rates) and 
generally is enforced. Along with widespread rent controls, basic food 
and utility subsidies, and phased implementation of an assured minimum 
income, the minimum wage affords a basic standard of living for a 
worker and family.
    Employees generally receive 14 months pay for 11 months work: the 
extra 3 months pay are for a Christmas bonus, a vacation subsidy, and 
22 days of annual leave. The maximum legal workday is 8 hours and the 
maximum workweek 40 hours. There is a maximum of 2 hours of paid 
overtime per day and 200 hours of overtime per year. The Ministry of 
Employment and Social Security monitors compliance through its regional 
inspectors.
    Employers are legally responsible for accidents at work and are 
required to carry accident insurance. An existing body of legislation 
regulates health and safety, but labor unions continue to argue for 
stiffer laws. The General Directorate of Hygiene and Labor Security 
develops safety standards in harmony with European Union standards, and 
the General Labor Inspectorate is responsible for their enforcement, 
but the Inspectorate lacks sufficient funds and inspectors to combat 
the problem of work accidents effectively. A relatively large 
proportion of accidents occurs in the construction industry. Poor 
environmental controls in textile production also cause considerable 
concern.
    While the ability of workers to remove themselves from situations 
where these hazards exist is limited, it is difficult to fire workers 
for any reason. Workers injured on the job rarely initiate lawsuits.
    f. Worker Rights in Sectors with U.S. Investment: Legally, worker 
rights apply equally to all sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  (\1\)
Total Manufacturing.........  ...........  479
  Food & Kindred Products...  113          .............................
  Chemicals & Allied          95           .............................
   Products.
  Primary & Fabricated        -11          .............................
   Metals.
  Industrial Machinery and    (\1\)        .............................
   Equipment.
  Electric & Electronic       237          .............................
   Equipment.
  Transportation Equipment..  69           .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  278
Banking.....................  ...........  128
Finance/Insurance/Real        ...........  214
 Estate.
Services....................  ...........  491
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  1,784
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                ROMANIA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                    1999          2000        \1\ 2001
------------------------------------------------------------------------
Income, Production and
 Employment:
  Nominal GDP (Billion Current    521,735.5     796,533.7     1,103,100
   Lei) \2\...................
  Real Lei GDP Growth (pct)           (3.2)           1.6           4.5
   \3\........................
  GDP by Sector (Million US$):     34,026.9      36,724.8      37,820.0
    Agriculture...............      4,729.7       4,192.4       5,656.5
    Manufacturing.............      9,459.5      10,136.9      11,348.0
    Services..................     19,837.7      22,395.5      20,815.5
  Per Capita GDP (US$)........      1,512.3       1,639.5       1,692.4
  Labor Force (Millions)......          9.8           9.5           9.5
  Unemployment Rate (pct).....         11.8          10.5           9.9
 
Money and Prices (annual
 percentage growth):
  Money Supply Growth (M2)....         44.9          38.0          25.4
  Consumer Price Inflation....         54.8          40.7          32.6
  Exchange Rate (Lei/US$
   annual average):...........
    Official..................     15,333.0      21,689.2      29,160.0
    Parallel..................     16,315.0      22,139.9      29,352.0
 
Balance of Payments and Trade:
  Total Exports FOB \4\.......      8,504.7      10,366.5      12,025.1
    Exports to United States          316.9         379.8         408.9
     \4\......................
  Total Imports CIF \4\.......     10,395.3      13,054.5      16,918.6
    Imports from United States        362.4         391.1         458.3
     \4\......................
  Trade Balance FOB/CIF \4\...     -1,890.6      -2,688.0      -4,893.5
    Balance with United States        -45.5         -11.3         -49.4
  External Public Debt \5\....      6,220.3       6,884.2       7,100.0
  Fiscal Deficit/GDP (pct) \6\          4.0           3.7           3.6
  Current Account Deficit/GDP           3.8           3.8           7.9
   (pct)......................
  Debt Service Payments/GDP            10.4           5.9           5.1
   (pct) \7\..................
  Gold and Foreign Exchange         2,492.9       3,396.6       4,506.5
   Reserves \8\...............
  Aid from United States......         56.0          33.8          36.0
  Aid from All Other Sources..        172.8         324.2         300.0
------------------------------------------------------------------------
\1\ 2001 figures are all estimates based on available monthly data in
  September.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Public Guaranteed Debt included.
\6\ Consolidated budget deficit.
\7\ Short-term, included.
\8\ Official reserves with the central bank.


1. General Policy Framework
    Despite a slow start, market-based economic reforms have steadily 
picked up pace in 2001, the first year of the new government GDP growth 
has increased dramatically, exports have continued to grow, moderately 
tight fiscal policy has resulted in lower inflation, there has been 
modest progress in privatization, and industrial output has increased. 
On the negative side, a surge in imports has led to a widening current 
account deficit.
    GDP is expected to rise around 4.5 percent in 2001. (The informal 
economy is estimated at more than 25 percent of official GDP. The 
current account deficit has widened to more than double normal figures, 
and external public debt has only slightly increased. Improved tax 
collection and tight public spending should bring the consolidated 
budget deficit down to around 3.5 percent of GDP under the new IMF's. 
Public direct and guaranteed external debt service was projected to 
drop to 5.1 percent of the GDP in 2001. Foreign public debt has 
increased only slightly, and Romania has continued to meet its debt 
obligations on time and in full. As a result of Romania's continued 
good record on debt service and steady growth of official foreign 
exchange reserves, , up 56.7 percent by June 2001 from June 2000, 
rating agencies have upgraded Romania's country rating to B(B) by 
Fitch, B(B) by Standard and Poor's, B-three (B3) from Moody's Investor 
Service.
    Romania is committed to becoming a member of the European Union 
(EU), which is by far its largest trading partner, and has opened 15 
accession chapters so far, of which eight are closed. Trade with the EU 
now accounts for 68 percent of Romania's merchandise exports and 56 
percent of imports. Trade with the United States accounts for 3.4 
percent of Romania's exports and 3.3 percent of its imports. In 2001, 
U.S. exports to Romania are projected to grow 17 percent.
2. Exchange Rate Policy
    The foreign exchange market was liberalized in February 1997. The 
Leu is fully convertible for current account transactions and foreign 
investment. The Leu depreciated less in 2001 compared to 2000. For the 
first half of the year, the nominal devaluation was 12.5 percent, while 
the real appreciation was 2.3 percent. The central bank has remained 
committed to increasing the official forex reserves and has agreed to 
full future convertibility of the capital account, but the necessary 
conditions for the later are not yet in place and may require three to 
four years to complete.
3. Structural Policies
    Economic reform has resulted in the passage of a wide variety of 
legislation affecting virtually every sector: commerce, privatization, 
intellectual property, banking, labor, foreign investment, environment, 
taxation, and SMEs. While new legislation is necessary to create a 
basis for a market economy, frequent regulatory change has slowed down 
the pace of trade and investment. Legal framework implementation has 
remained a serious problem, given subjective and sometimes corrupt 
manipulations. Another major legislative problem is the politically 
driven change of direction after elections, when several market-
oriented ordinances adopted by the former government were immediately 
repealed by the new one, often without being submitted them to 
parliament for debate. Two of the most important ordinances repealed 
referred to private pension funds and the protection of minority 
shareholders. Both have impacted foreign investments in Romania, 
although the impact of repeal of the former was negative, while the 
repeal of the latter was mixed.
    Agricultural prices are generally determined by market forces, and 
there are no export quotas. Over the past two years tariffs have been 
reduced by 66 percent. However, very modest progress has been made in 
agricultural sector privatization, and Agriculture Structural 
Adjustment (ASAL) program agreed with the World Bank was terminated. 
The Agricultural Bank's privatization, completed in 2001, represents a 
good reform opportunity both for agri-business investments in Romania, 
as well for the development of the retail banking sector.
    Currently, deep-seated problems remain in the agricultural sector. 
Among them:

   the continued pervasive state presence, including in 
        acquisition prices, state management of a large proportion of 
        arable land, state ownership of input supply, storage, 
        marketing, and agro-processing enterprises;
   incomplete land reform which has left many fragmented 
        holdings, for which property rights are still not well-defined;
   limited financial services, few private input suppliers, and 
        little extension services;
   agricultural coupons for tiled lands that arrive too late to 
        be helpful for agricultural production.

    The pace of reform in heavy industry has been even slower. The 
state has retained ownership of 65 percent of the industrial sector. 
Plant inventories and arrears have been up in 2001. While the 
government remains committed to privatizing, albeit with only moderate 
success to date, most liquidation procedures were halted and productive 
assets have been re-opened for social cause, regardless of financial 
cost. The recent privatization of Sidex, the largest steel plant, is a 
positive sign. Meanwhile, industrial direct or indirect subsidies such 
as soft loans are still largely concentrated in loss-making industries 
such as truck and tractor construction. However, tax incenives granted 
to potential growth sectors, such as IT or aluminum represented 
positive exceptions to this rule in 2001. Other sectors having good 
growth driving potential such as food-processing have received no 
support.
    As a rule, the government does not interfere with market forces by 
implementing price controls; however, in order to provide some social 
comfort and anti-inflation leverage, it has sometimes released supplies 
from the state reserves of basic food-stuffs such as edible oil, sugar, 
etc.
4. Debt Management Policies
    At the end of June 2001, Romania's medium and long-term external 
debt amounted to $10.0 billion, up slightly from $9.9 billion at the 
end of 2000. The National Bank's foreign exchange reserves amounted to 
$4.5 billion, gold included, and the total reserve assets of the 
banking system reached $5.7 billion in June 2001. Romania has claims 
against foreign countries amounting to $3 billion.
    The Government of Romania succeeded in avoiding default in 1999 
without resorting to roll-over, and since then has increased foreign 
exchange reserves. In 1999-2000, Romania succeeded in significantly 
cutting the current account deficit. In 2001, the trade deficit has 
been driving a booming current account deficit. After long 
negotiations, the previous government concluded with the IMF a new 
stand-by loan worth $535 million, the first installment ($73 million) 
of which was released in August 1999. A second tranche was released in 
June 2000 after significant delay, but the program expired in February 
2001 without any more disbursements. The IMF Board approved a new 380 
million Stand-By Agreement on October 31. The first installment was $66 
million, and the first program review is scheduled for February 2002.
    The previous government received a $300 million Private Sector 
Structural Adjustment Loan (PSAL) from the World Bank, which was fully 
disbursed. Under the PSAL, the Government of Romania worked to reform 
the banking sector, close loss-making firms, and improve the business 
environment. The World Bank will continue this work with the new 
Government of Romania through a second PSAL that is expected to be 
approved shortly.
    Despite the absence of an IMF program, the Government of Romania 
succeeded in tapping international private capital markets this year at 
favorable rates. A January 2001 Eurobond issue in the amount of EUR 150 
million, with an interest rate of 11.5 percent for five years was re-
opened in March for another EUR 150 million, with the same maturity, at 
an 11.25 percent interest rate. In June 2001, EUR 600 million were 
obtained for seven years at 10.65 percent, but there was sufficient 
demand to have sold EUR 1300 million in bonds. The spreads on Romanian 
debt have remained stable despite emerging market turmoil dues to 
Argentina's debt problems.
5. Significant Barriers to U.S. Exports
    Traditionally-defined trade and investment barriers are not a 
significant problem in Romania, as there are no laws that directly 
prejudice foreign trade or business operations. Tariff preferences 
resulting from Romania's Association Agreement with the EU have 
disadvantaged U.S. exports in several sectors, including agriculture, 
telephonic equipment, computers, and beverages.
    Bureaucratic red tape and frequent changes in the legal framework 
make doing business in Romania challenging. Negotiating contracts can 
be time consuming and, once concluded, enforcement is not uniform. In 
addition, delays in reconciling conflicting property claims arising 
from seizures during the World War II and Communist eras, have resulted 
in a situation in which purchasers are potentially subject to legal 
challenge by former owners and title insurance is not available. The 
absence of clear and expedient legal recourse to recover claims against 
debtors has represented a further complication for foreign investors.
    The cost of doing business in Romania is relatively high for the 
region, particularly for office rental, transportation and 
telecommunication services. Lack of an efficient payment system further 
delays transactions in Romania. Capital requirements for foreign 
investors are not onerous, but local capital remains expensive. Also, 
taxes on both profits and operations are steep. Investors complain of 
inconsistency in Romania's policy on tax incentives for foreign 
companies. Foreign companies have qualified for some tax exemptions 
based on the size of their direct investment.
    There are few formal barriers to investment in Romania. The Foreign 
Investment Law allows for full foreign ownership of investment projects 
(including land, for as long as the investment is in place.) There are 
no legal restrictions on the repatriation of profits and equity 
capital. The continually changing legal regime for investment and 
privatization, however, forms a significant obstacle to investment. 
Government approval of joint ventures requires extensive documentation. 
U.S. cumulative direct investments in Romania totaled US$ 693.2 million 
by December 2000, which represents 8.2 percent of the total foreign 
direct investment in Romania. The figure for 2000 is US$ 107.2 million.
    Romania is a full member of the World Trade Organization, but not a 
signatory to the agreement on government procurement.
6. Export Subsidies Policies
    The Romanian Government does not provide export subsidies but does 
attempt to make exporting attractive to Romanian companies. For 
example, the government provides refunds of import duties for goods 
that are then processed for export. The Romanian Export-Import Bank 
engages in trade promotion activities on behalf of Romanian exporters, 
and has lately become more of a commercial and analysis bank.
    There are no general licensing requirements for exports from 
Romania, but the government does prohibit or control the export of 
certain strategic goods and technologies. There are also export 
controls on imported or domestically produced goods of proliferation 
concern.
7. Protection of U.S. Intellectual Property Rights
    Romania has enacted significant legislation in intellectual 
property protection. Modern patent, trademark, and copyright laws are 
in place. In 2001, the Romanian Parliament ratified the latest 
copyright and neighboring right treaties of Geneva that Romania had 
signed and adhered to since 1996: WIPO copyright treaty and WIPO 
artistic performance and phonogram treaty. Still, enforcement is 
limited and often ineffective, especially in the copyright area.
    Pirated copies of audio and video cassettes, CDs, and software are 
still readily available. In a few cases, pirated films were broadcast 
on local cable television channels. There are no known exports of 
pirated products from Romania.
    Romania is a member of the Berne Convention, the World Intellectual 
Property Organization, the Paris Intellectual Property Convention, the 
Patents Cooperation Treaty, the Madrid Convention, and the Hague 
Convention on Industrial Design, Drawings and Models. As a country in 
transition, Romania implemented the WTO agreement on intellectual 
property beginning January 1, 2000. Industrial property law amendments 
needed for full compliance with TRIPS have already been drafted, but 
not yet enacted. These drafts include the law for changing and 
completing Patent Law (64/1991) and the draft law for changing and 
completing Industrial Drawing and Model Protection (129/1992).
    The TRIPS-consistent Copyright and Neighboring Rights Law has been 
inefficiently implemented, mainly due to the lack of coordination among 
the government enforcement agencies, police, prosecutors and judges, as 
well as due to each of these organizations' lack of focus and 
appropriate budget. The Business Software Association estimates that 
currently, pirated products account for about 77 percent of the 
Romanian market, down from 95 percent prior to the law's coming into 
force. The music piracy rate is estimated at 55 percent and audio-
visual piracy about 50 percent. In order to solve this problem, the 
government drafted a bill that came into force in 2001 regulating the 
customs' right to check on imports from the IPR point of view.
    On March 26, 2001, almost five years after the passage of the 
Copyright Law, Romania carried out the first mass-destruction of seized 
counterfeited CDs and music tapes.
8. Worker Rights
    a. The Right of Association: All workers, except public employees, 
have the right to associate freely and to form and join labor unions 
without prior authorization. Labor unions are free from government or 
political party control but may engage in political activity. Labor 
unions may join federations and affiliate with international bodies, 
and representatives of foreign and international organizations may 
freely visit and advise Romanian trade unions.
    b. The Right to Organize and Bargain Collectively: Workers have the 
right to bargain collectively. Basic wage scales for employees of 
state-owned enterprises are established through collective bargaining 
with the state. There are no legal limitations on the right to strike, 
except in sectors the government considers critical to the public 
interest (e.g. defense, health care, transportation). In early 2001, 
the government concluded a Social Pact with national union 
confederation and employer associations, under which the unions agreed 
not to stage national strikes, in return for promises regarding wages, 
pensions and new labor legislation. However, the Social Pact does not 
prevent local unions from staging protests and strikes protesting 
privatization or restructuring of their companies or wage levels that 
do not keep the pace with the rate of inflation.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor. The Ministry of Labor and Social 
Protection effectively enforces this prohibition.
    d. Minimum Age for Employment of Children: The minimum age for 
employment is 16. Children over 14 may work with the consent of their 
parents, but only ``according to their physical development, aptitude, 
and knowledge.'' Working children under 16 have the right to continue 
their education, and employers are required to assist in this regard.
    e. Acceptable Conditions of Work: Minimum wage rates are generally 
observed and enforced. The Labor Code provides for a standard workweek 
of 40 hours with overtime for work in excess of 40 hours, and paid 
vacation of 18 to 24 days annually. Employers are required to pay 
additional benefits and allowances to workers engaged in dangerous 
occupations. The Ministry of Labor and Social Protection has 
established safety standards for most industries, but enforcement is 
inadequate and employers generally ignore the Ministry's 
recommendations. Labor organizations continue to press for healthier, 
safer working conditions. On average, women experience a higher rate of 
unemployment than men and earn lower wages despite educational 
equality.
    f. Rights in Sectors with U.S. Investment: Conditions do not appear 
to differ in goods producing sectors in which U.S. capital is invested.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  (\1\)
Total Manufacturing.........  ...........  27
  Food & Kindred Products...  (\1\)        .............................
  Chemicals & Allied          (\1\)        .............................
   Products.
  Primary & Fabricated        0            .............................
   Metals.
  Industrial Machinery and    1            .............................
   Equipment.
  Electric & Electronic       0            .............................
   Equipment.
  Transportation Equipment..  5            .............................
  Other Manufacturing.......  0            .............................
Wholesale Trade.............  ...........  21
Banking.....................  ...........  0
Finance/Insurance/Real        ...........  (\1\)
 Estate.
Services....................  ...........  0
Other Industries............  ...........  24
    Total All Industries....  ...........  106
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 RUSSIA


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                       1999         2000       \1\ 2001
------------------------------------------------------------------------
Income, Production and
 Employment:
  Nominal GDP \2\................       4,546        7,063   \3\ 5,475.9
  Real GDP Growth (pct)..........         5.4          8.3        \3\ 5
  GDP Growth by Sector:
    Agriculture..................         N/A          N/A          N/A
    Manufacturing................         N/A          N/A          N/A
    Services.....................         N/A          N/A          N/A
    Government...................         N/A          N/A          N/A
  Per Capita Personal Income              650        900.3        1,228
   (US$).........................
  Labor Force (000s).............      72,000       72,300       71,000
  Unemployment Rate (pct)........        12.6         10.4          8.2
 
Money and Prices (annual percent
 growth):
  Money Supply Growth (M2).......        57.2         47.1     \3\ 19.4
  Consumer Price Index (percent          36.6         20.2     \3\ 13.9
   increase).....................
  Exchange Rate (Ruble/US$--            24.63        28.15     \4\ 29.4
   annual average)...............
 
Balance of Payments and Trade:
  Total Exports (FOB)............        72.9        103.0         51.3
    Exports to United States.....         5.8          7.8      \6\ 4.1
  Total Imports (CIF)............        30.3         33.9         19.5
    Imports from United States...         1.8          2.3      \6\ 1.6
  Trade Balance..................        42.6         69.1         31.8
    Balance with United States...         4.0          5.5      \6\ 2.5
  Current Account................        24.6         46.3     \7\ 11.7
  External Public Debt...........       159.7          147      \8\ 141
  Fiscal Deficit/GDP (pct).......         1.7        -2.46     \5\ -4.2
  Debt Service Payments/GDP (pct)         5.9          2.4      \5\ 3.5
  Gold and Foreign Exchange              12.5         27.9     \4\ 37.9
   Reserves......................
  Aid from United States (US$         1,937.1      1,108.9        978.9
   millions) \9\.................
  Aid from All Other Sources.....         N/A          N/A          N/A
------------------------------------------------------------------------
\1\ 2001 data has been provided for the last available period (8/00)
  unless otherwise noted.
\2\ Billions of Russian Rubles.
\3\ Data for the period January-August 2001.
\4\ Data as of September 28, 2001.
\5\ Data for the period January-July 2001.
\6\ U.S. Commerce Department data for the period January-July 2001.
\7\ Data for the first quarter of 2001.
\8\ Data as of January 2001.
\9\ U.S. government assistance (by fiscal year) including food
  assistance, not including donated humanitarian commodities shipped by
  U.S. government.
 
Sources: Russian Statistics Committee (Goskomstat), Russian State
  Customs Committee, International Monetary Fund, Department of State S/
  NIS/C and embassy estimates.


1. General Policy Framework
    The Russian economy is in its third year of economic growth, albeit 
at a slower rate. Continued high commodity prices spur this growth, but 
increased private consumption and investment also contribute. 
Significant ruble appreciation since mid 2000 has sharply reduced 
exports and accelerated imports, but import substitution industries. 
The economy has continued to benefit from increased monetization of the 
economy, a substantially improved fiscal situation, and a perception of 
greater political stability. Further economic growth depends on several 
factors, some internal (continued structural reform, domestic 
investment, improved rule of law) and some external (oil and other 
commodity prices, foreign investment flows).
    The Russian economy grew 8.3 percent in 2000. In the first six 
months of 2001, GDP increased 5 percent (year-on-year) and forecasts 
for calendar year 2001 are for 5.5 percent GDP growth. However, real 
appreciation of the ruble in the second half of 2000 due to the strong 
current account surplus and relaxation of fiscal and monetary policies 
slowed the growth of export and industrial production. Net exports are 
a declining but still large contributor to GDP (estimated at 16 
percent, down from 24 percent in 2000), as oil and other commodity 
prices remain relatively high. Imports in dollar terms have only 
recently begun to rise, although the weakness of the euro against both 
the dollar and the ruble has masked import volume increases. (Note: 
Many of Russia's imports are denominated in euros.) Domestic demand is 
increasing and becoming a major economic driver. Total investment also 
increased substantially in 2001, up eight percent during the first 
eight months of 2001. Both foreign and domestic investment grew, and 
increasing amounts went into light industry and food processing, 
indicating deepening economic recovery and increased productivity.
    In the medium term, economic development will depend on a continued 
recovery in domestic demand and investment, underpinned by progress on 
structural reform. The Russian government has made impressive strides 
to implement its reform program, passing a major tax reform, 
simplifying the tariff system, reducing administrative barriers to 
business, and allowing for the sale of commercial and residential land 
in cities and villages. However, problems in the investment climate, 
including poorly functioning judicial and enforcement systems and 
poorly developed capital markets, present significant disincentives to 
domestic and foreign investment. The banking sector has stabilized from 
its collapse in 1998, but still does not effectively intermediate 
savings to productive investments on a large scale. State banks 
increasingly are crowding out private banks for commercial lending. 
Capital flight has leveled off, however, and flight capital is 
returning home to Russia in the guise of foreign investment.
    Russia continues to exhibit fiscal discipline, based on better 
fiscal policy and tax collection and achieved primary and overall 
surpluses in 2000. In the first eight months of 2001, the federal 
budget surplus was R85 billion, or 1.5 percent of GDP. Expenditures 
were R895 billion and revenues were R980.1 billion. Budget surpluses 
were largely due to higher energy sector tax receipts and improvements 
in compliance. A relaxation of fiscal and monetary policy in the fourth 
quarter of 2000 resulted in a surge of capital outflows; in the first 
quarter of 2001, however, key monetary aggregates were in line with 
projections. The budget surplus has been the major factor in this 
regard, absorbing the monetary liquidity created by the huge increase 
in foreign reserves. Restraining monetary growth has been a significant 
challenge, in the context of high dollar inflows and the government's 
desire to build reserves and avoid significant ruble appreciation or 
inflation. While the Central Bank of Russia (CBR) is limited in its 
sterilization efforts due to lack of financial instruments, the recent 
lifting of the 0.8 percent tax on bonds and other measures make it 
easier for the CBR to issue its own bonds, which, along with increased 
use of its deposit mechanism, should help to absorb liquidity. The 
Russian government and CBR continue to coordinate their fiscal and 
monetary policies to try to avoid substantial real ruble appreciation. 
The CBR has intervened selectively to even out exchange rate 
fluctuations, preventing sharp appreciation or depreciation. Inflation 
was about 18 percent in 2000, and is projected to be 16-18 percent for 
2001.
    The positive trend for Russia's economy should be put in 
perspective. The cost of Russia's 1998 financial collapse was 
significant. Measured in dollar terms at the average rate of exchange 
(and keeping in mind that the sharp devaluation may have magnified the 
drop), Russia's GDP in 1999 was only about $183 billion, slightly more 
than half of its value in 1995 ($337 billion). Even with strong growth 
registered in 2000 and some real ruble appreciation, Russia's GDP in 
dollar terms may not reach pre-crisis levels until 2001 or later.
2. Exchange Rate Policy
    The objective of the CBR's exchange rate policy is to prevent sharp 
fluctuations. The CBR and Russian government also are working together 
to prevent significant real ruble appreciation due to high dollar 
inflows from high oil and commodity prices. The nominal ruble/dollar 
exchange rate has been rising relatively smoothly over the first nine 
months of 2001, and was up by 4.4 percent by the end of September. Even 
though the ruble depreciated in nominal terms, it continued to grow in 
real terms and was up by 9.5 percent in the first nine months of 2001. 
This real appreciation in exchange rates has only partially offset the 
large devaluation in 1998, so the price competitiveness of imported 
goods (including U.S. goods) has recovered only marginally.
    During the first nine months of 2001, the CBR's international 
reserves grew to post-Soviet record levels of $37.9 billion: up by 
33.92 percent since Jan.2001. Relatively high ruble liquidity, as 
reflected in the approximately R75-90 billion held in banks' 
correspondent accounts at the CBR, reflects the CBR's purchase of 
dollars. Monetary base growth over the first nine months reflects the 
same fact. Most of these CBR ruble emissions have been ``sterilized'' 
by the Russian government's budget surplus, rather than by traditional 
central bank operations.
    Part of the ruble's strength can be explained by administrative 
controls maintained by the CBR. The CBR still restricts banks from 
trading on their own accounts, converting funds in S-accounts from the 
GKO restructuring, and depositing amounts equivalent to those it holds 
in S-accounts of non-residents. The CBR also continues restrictions on 
foreign exchange for export contracts, but a new law implemented on 
August 10, 2001, reduces the rate from 75 to 50 percent of the 
repatriated export proceeds that must be sold on authorized exchanges. 
Under these conditions, the CBR only needs to make tactical 
interventions in the foreign exchange markets to smooth volatility.
3. Structural Policies
    The Russian government in 2001 continued to pursue the course of 
market economic structural reforms outlined in the government's 
``Strategy of Development of the Russian Federation through 2010.'' 
Minister of Economic Development and Trade German Gref, whose Center 
for Strategic Research developed this reform plan, is pressing forward 
on its implementation. The plan focuses on modernizing the economy 
through releasing private initiative and ensuring a favorable 
environment for economic activity, including fair rules for 
competition, deepening of the rule of law, integration into the world 
economy, and reform of Russia's natural monopolies. The strategy 
includes a detailed table of actions to be undertaken in its initial 18 
months, and more general goals for the following eight years.
    The continued emphasis on reform from above, coupled with the more 
cooperative Duma (parliament) that emerged from the December 1999 
elections, has made some significant progress on reform legislation in 
2001. That said, the government has husbanded its political capital, 
and pressed only for top priority reforms. Following upon the 
individual income tax reform in 2000, the Duma passed a new corporate 
profits tax that lowers rates to 24 percent, and brings deduction 
practices close to international standards. The Duma also passed a new 
land code that will legalize sales of non-agricultural land. Other 
measures passed this year include the first tranche of the government's 
de-regulation package. The measures recently passed will limit the 
number of sectors subject to licensing, protect businesses from 
excessive inspections, and simplify business registration.
    Despite the progress on some structural reforms, much additional 
work remains in key areas such as banking reform, judicial reforms, 
corporate governance, agricultural land reform, and changes needed to 
bring Russia's legislation into line with WTO requirements.
4. Debt Management Policies
    The Government of Russia is seeking to reduce substantially its 
internal and external debt, and to minimize new debt or contingent 
guarantee liabilities. In 2000 and 2001, government budget surpluses, 
combined with trade and current account surpluses, have allowed Russia 
to meet external debt payments and build Central Bank reserves. Since 
the August 1998 financial crisis, it has restructured almost all of its 
internal and pre-1992 external debt with the London and Paris Clubs, 
and completed the restructuring of its MinFin3 bonds. The 2002 Russian 
government budget assumes payment of roughly $14 billion in official 
debt service payments falling due. In 2003, the Government of Russia 
faces a debt spike to $19 billion because of higher MinFin and Eurobond 
payments, although it has prepaid $1 billion of this already and may 
have repurchased some of its private sector debt. At this point, the 
Government of Russia is not seeking a new Paris Club restructuring. The 
IMF is monitoring Russian economic performance in the context of a 
Post-Monitoring framework. Given its strong international reserve 
situation, the government is not seeking a Stand-by facility.
    The CBR continues to prohibit the conversion of S-account (accounts 
through which non-residents invested in government securities) rubles 
to foreign currency, except during occasional CBR foreign exchange 
auctions. Investors also may invest restricted S-account rubles in 
certain securities and trade assets within a S-account. Many foreign S-
account holders have been able to repatriate their funds, at 
substantial discounts, through schemes by which they bought and then 
resold authorized securities.
5. Significant Barriers to U.S. Exports
    Complicated economic conditions continue to pose a greater hurdle 
for U.S. exports to Russia than statutory trade barriers. Despite 
continuing economic growth, imports are only now beginning to approach 
pre-1998 levels, as incomes remain low and real appreciation of the 
ruble has been slow. Russia's overall imports in the first half of 2001 
rose almost 25 percent from the still depressed levels for the same 
period in 2000. U.S. exports to Russia also increased in 2001, up about 
18 percent from the previous year's level. With reduced availability of 
trade finance, exporters remain cautious about entering the Russian 
market, where they now face much stronger domestic competition from 
Russian companies that used the weak ruble to build up their market 
share.
    Since 1995, Russian tariffs have generally ranged from zero to 
thirty percent, with average import tariff rates at 11.4 percent. For 
some products, however, including poultry and automobiles, compound 
duties with minimum tariffs per unit or by weight effectively raised 
tariff rates above their ad valorem equivalents. This has particularly 
affected poultry imports, although this year's modifications in 
compound poultry duties have brought effective duties closer to the 
nominal 25 percent rate. In addition, excise taxes are applied to a 
select group of imports, while Value-Added Tax (VAT) is applied to 
virtually all imports. The VAT, which is applied on the import price 
plus tariff, is currently 20 percent with the exception of some 
medicines, food products and items for children, which are taxed at 10 
percent. Russia's new unified tariff regime, which applies the same 
duty across broad product categories, took effect in January 2001. 
These new tariffs generally range from 5 to 20 percent, with a very 
small number of items remaining at the zero (insulin), 25 (poultry, 
automobiles), and 30 percent (sugar) levels. For sugar, Russia also has 
resorted to high seasonal tariffs on top of these rates and the 
introduction of a tariff rate quota. The Russian government is 
discussing imposing tariff rate quotas on other imports, including 
rice, poultry and red meats. The first results show the new tariff 
structure has made modest progress in the government's goal of 
simplifying customs administration, reducing fraud, and through better 
compliance eventually increasing customs revenues, although more 
thorough going customs reform will be needed to make more substantial 
progress toward these objectives.
    Other Russian tariffs that have stood out as particular hindrances 
to U.S. exports to Russia include those on autos (where combined 
tariffs and engine displacement-weighted excise duties can raise prices 
of larger U.S.-made passenger cars and sport utility vehicles by over 
70 percent); and on aircraft and certain aircraft components (for which 
tariffs are set at 20 percent). For the time being, the Russian 
government has suspended waivers on aircraft import tariffs for 
purchases by Russian airlines.
    Throughout 2001 Russia maintained export duties (for exports to 
non-CIS countries) on many products as a revenue measure. Initially, 
these duties were imposed on oil and gas, but have since been expanded 
to include many export commodities, including fertilizers, paper and 
cardboard, some ferrous and non-ferrous metals, and agricultural 
products, including oilseeds raw hides, and hardwoods, all ranging from 
5 to 25 percent. Throughout the year, the government has adjusted 
export duties on crude oil and oil products to reflect changes in world 
oil market prices, with the duty now set at 34 euros per ton.
    Import licenses are required for the importation of various goods, 
including ethyl alcohol and vodka, color TVs, sugar, combat and 
sporting weapons, self-defense articles, explosives, military and 
ciphering equipment, encryption software and related equipment, 
radioactive materials and waste including uranium, strong poisons and 
narcotics, and precious metals, alloys and stones. Most import licenses 
are issued by the Russian Ministry of Economic Development and Trade or 
its regional branches, and controlled by the State Customs Committee. 
Import licenses for sporting weapons and self-defense articles are 
issued by the Ministry of Internal Affairs. The government has 
continued tight controls on alcohol production, including import 
restrictions, export duties, and increased excise taxes. Many of these 
controls are designed to increase budget revenues.
    The Law on Protective Trade Measures, passed in spring 1998, gives 
the government authority to undertake antidumping, countervailing duty 
and safeguard investigations, under certain conditions. Because of the 
law's provisions and Russian companies' lack of familiarity with such 
measures, Russian companies have only been able to file successful 
actions in a handful of cases, mostly safeguards cases. So far, there 
has not been a single successful anti-dumping action under the law. The 
Ministry of Economic Development and Trade has stated it plans by the 
end of 2001 to submit amendments to the Law on Protective Trade 
Measures, to make easier for Russian companies to file actions. Under 
the government's economic reform plan, such protective actions are to 
replace tariffs as the preferred method for protecting domestic 
industry.
    The June 1993 Customs Code standardized Russian customs procedures, 
bringing them generally in accordance with international norms, but 
significant problems remain. Customs regulations change frequently, 
(often without sufficient notice), are subject to arbitrary 
application, and can be quite burdensome. In addition, Russia's use of 
minimum customs values is not consistent with international norms. An 
April 2000 State Customs Committee restriction that forced U.S. poultry 
importers to ship directly through Russian ports remains in place. The 
Veterinary Service regularly promulgates internal regulations that 
impede trade. On the positive side, Russian customs is implementing the 
``ClearPac'' program in the Russian Far East that facilitates customs 
clearance from the United States, and there is discussion of extending 
the program to other regions.
    U.S. companies continue to report that Russian procedures for 
certifying imported products and equipment are non-transparent, 
expensive, time-consuming and beset by redundancies. Russian regulatory 
bodies also generally refuse to accept foreign testing centers' data or 
certificates. U.S. firms active in Russia have complained of limited 
opportunity to comment on proposed changes in standards or 
certification requirements before the changes are implemented. The 
Government of Russia is considering a reform of its standardization 
law, to be submitted to the Duma by the end of the year. Some reform 
proposals would reduce the number of areas subject to standards to a 
minimum. Occasional jurisdictional overlap and disputes between 
different government regulatory bodies compound certification problems.
    Some of Russia's current legislation in the services sector is 
overtly protectionist. In theory, foreign participation in banking has 
been limited to 12 percent of total paid-in banking capital, but the 
legal basis for this restriction was never fully established. In the 
aftermath of the financial crisis, foreign banks' share has exceeded 
this limit, but the government has taken no action. The Government of 
Russia's most recent banking strategy has proposed abolishing this 
quota entirely. Foreign investment is also limited in other sectors, 
such as electricity generation and aviation. An October 1999law 
implicitly allows majority-foreign-owned insurance companies to operate 
in Russia for the first time, but restricts their total market 
capitalization and prohibits them from selling life insurance or 
obligatory types of insurance. The law contains a ``grandfather 
clause'' exempting the four foreign insurance companies currently 
licensed in Russia from these restrictions. In practice, foreign 
companies are often disadvantaged vis-a-vis Russian counterparts in 
obtaining contracts, approvals, licenses, registration, and 
certification, and in paying taxes and fees.
    Despite the passage of a revised law regulating foreign investment 
in June 1999, Russian foreign investment regulations and notification 
requirements can be confusing and contradictory. The Law on Foreign 
Investments provides that a single agency (still undesignated) will 
register foreign investments, and that all branches of foreign firms 
must be registered. The law does codify the principle of national 
treatment for foreign investors, including the rights to purchase 
securities, to transfer property rights, to protect rights in Russian 
courts, to repatriate funds abroad after payment of duties, and to 
receive compensation for nationalizations or illegal acts of Russian 
government bodies. The law goes on to state, however, that Federal law 
may provide for a number of exceptions, including where necessary for 
``the protection of the constitution, public morals and health, and the 
rights and lawful interest of other persons and the defense of the 
state.'' The potential large number of exceptions thus gives 
considerable discretion to the Russian government. The law provides a 
``grandfather clause'' to protect existing ``priority'' (foreign 
charter capital of over $4.1 million and with a total investment of 
over $41 million) foreign investment projects with a foreign 
participation over 25 percent from unfavorable changes in the tax 
regime or new restrictions on foreign investment, but the law's 
protections have not been effective. Lack of corresponding customs and 
tax legislation has so far prevented implementation of these tax 
protections.
    The September 2001 passage of a land code for non-agricultural land 
will for the first time permit foreign ownership of real estate.
    The government maintains a monopoly on the sale of precious and 
several rare-earth metals, conducts centralized sales of diamonds, and 
conducts centralized purchases for export of military technology. In 
November 2000, Russia changed its previous regime for arms export sales 
and established a unified state arms sales organization, 
Rosoboroneksport through merger and consolidation. Arms exports require 
licensing by the Ministry of Economic Development and Trade. Export 
control policy is coordinated by the interagency Export Control 
Commission.
    Most of these issues are up for negotiation as part of the terms of 
Russia's accession to the World Trade Organization (WTO). The 
government has made accelerated WTO accession its top economic 
priority. By mid 2001, the government completed twelve working party 
meetings. The pace of accession negotiations has accelerated throughout 
the year, as bilateral goods and services market access negotiations 
continue to make progress. The Russian government provided a revised 
services market access offer in early 2001, and has also revised its 
goods tariff offer. Russia is not yet a signatory of the WTO Government 
Procurement or Civil Aircraft codes.
6. Export Subsidies Policies
    The government has not instituted export subsidies, although a 1996 
executive decree allows for provision of soft credits for exporters and 
government guarantees for foreign loans. The government does provide 
some subsidies for the production of coal, but coal exports are 
minimal. Low domestic prices for energy, which are provided to all 
industries, are seen by some as providing a hidden subsidy to some 
export industries, such as metals producers. The government is moving 
to encourage more realistic pricing for energy, however. Soft credits 
are at times provided to small enterprises for specific projects. 
Senior Russian officials have publicly advocated establishing an export 
credit agency, along the lines of the U.S. Exim Bank, but no concrete 
steps have been taken to establish such an agency.
7. Protection of U.S. Intellectual Property
    Under the U.S.-Russia Trade Agreement, which was originally signed 
with the Soviet Union in 1990, Russia is obligated to take steps to 
provide for the adequate and effective protection and enforcement of 
intellectual property (IP). To address these obligations, the United 
States and Russia established a bilateral working group, which met 
again in February 2001. In addition, Russia must fully comply with the 
Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement 
upon its accession to the WTO. In 2001, the U.S. Trade Representative 
retained Russia on the ``Special 301'' Priority Watch List for a fifth 
year, due in large part to concerns over weak enforcement of IP laws 
and regulations as well as the lack of retroactive copyright protection 
for U.S. works in Russia. In 2000, the U.S. copyright industry filed a 
petition with the U.S. Trade Representative requesting review of 
Russia's eligibility under U.S. Generalized System of Preferences (GSP) 
program, citing deficiencies in Russia's IP regime and inadequate 
enforcement of IP in Russia. The U.S. government continues to review 
this petition.
    Russia is a member of the World Intellectual Property Organization 
(WIPO) and has acceded to the obligations of the former Soviet Union 
under the Paris Convention for the protection of industrial property 
(patent, trademark and related industrial property), the Madrid 
Agreement Concerning the International Registration of Marks, and the 
Patent Cooperation Treaty. Russia has also become a signatory to the 
Berne Convention for the Protection of Literary and Artistic Works 
(copyright), as well as the Geneva Phonograms Convention.
    In 1992-93, Russia enacted laws strengthening the protection of 
patents, trademarks and appellations of origins, and copyright of 
semiconductors, computer programs, literary, artistic and scientific 
works, and audio/visual recordings. The government submitted new draft 
legislation in June 2001 to the Duma to provide for retroactive 
protections for copyrights and other measures to bring Russia into 
compliance with its bilateral and multilateral obligations, but the 
Duma has yet to take action on these laws.
    Legal enforcement of intellectual property rights (IPR) has seen 
some improvements through 2001, although the overall level of piracy 
remains high. A new Criminal Code that took effect January 1, 199, 
contains considerably stronger penalties for IPR infringements, and 
amendments passed by the Duma in 2001 will further increase penalties. 
However, there are still disappointingly few cases in which these 
penalties have been applied. Widespread sales of pirated U.S. 
videocassettes, recordings, books, computer software, clothes, toys, 
medicines, foods and beverages continue, and there are disturbing signs 
of increased manufacturing capacity for optical media that could be 
used to produce pirated product.
    Russia's Patent Law includes a grace period, procedures for 
deferred examination, protection for chemical and pharmaceutical 
products, and national treatment for foreign patent holders. Inventions 
are protected for 20 years, industrial designs for ten years, and 
utility models for five years. The Law on Trademarks and Appellation of 
Origins introduces for the first time in Russia protection of 
appellation of origins. The Law on Copyright and Associated Rights, 
enacted in August 1993, protects all forms of artistic creation, 
including audio/visual recordings and computer programs as literary 
works for the lifetime of the author plus 50 years. The September 1992 
Law on Topography of Integrated Microcircuits, which also protects 
computer programs, protects semiconductor topographies for 10 years 
from the date of registration.
    Losses to U.S. industry from pirated products sold in Russia (a 
significant portion of which are produced in third countries) are 
estimated to be significant, although there are few reliable estimates 
of their value, or of the value of purchases that Russian consumers, 
with their limited incomes, would make of non-pirated goods. 
Counterfeit goods also cause significant losses and may pose dangers to 
consumer health and safety. Investors in the consumer goods sector 
continue to warn the Russian government that they will not make further 
investments if infringement of intellectual property rights continues.
8. Worker Rights
    a. The Right of Association: The law provides workers with the 
right to form and join trade unions, but practical limitations on the 
exercise of this right arise from governmental policy and the dominant 
position of the Federation of Independent Trade Unions of Russia 
(FNPR). As the successor organization to the governmental trade unions 
of the Soviet period, and claiming to represent 80 per cent of all 
workers, the FNPR occupies a privileged position that inhibits the 
formation of new unions. In some cases, FNPR local unions have 
continued to work with management to discourage the establishment of 
new unions. While recent court decisions have supported the right of 
association and often ruled in favor of employees, enforcement of these 
decisions remains difficult. Registration procedures for unions are 
governed by the Law on Trade Unions, which specifies that registration 
requires a simple ``notification'' and submission of documents. 
Regional Departments of Justice throughout Russia have often ignored 
the procedures set out by this law and refused to register new unions 
by requiring changes in charter documents or confirmation of attendance 
at founding conferences. Such practices have prevented the registration 
of new unions or the re-registration of existing ones.
    b. The Right to Organize and Bargain Collectively: Although the law 
recognizes collective bargaining and requires employers to negotiate 
with unions, in practice employers often refuse to negotiate and 
agreements are not implemented. Past court rulings have established the 
principle that non-payment of wages (by far the predominant grievance) 
is an individual dispute and cannot be addressed collectively by 
unions. As a result, a collective action based on non-payment of wages 
would not be recognized as a strike, and individuals would not be 
protected by the Labor Law's guarantees against being fired for 
participation. The right to strike is difficult to exercise. Most 
strikes are considered technically illegal, as the procedures for 
disputes remain exceedingly complex. Moreover, courts have the right to 
order the confiscation of union property to settle damages and losses 
to an employer, if a strike is found to be illegal. Reprisals for 
strikes are common, although strictly prohibited by law.
    In December 2001, the Duma will consider amendments to a proposed 
new draft Labor Code. The draft code seeks to diminish the role of 
government in setting and enforcing labor standards and to move toward 
more flexible labor markets. In the conceptual scheme of the new code, 
trade unions are expected to play a balancing role in representing 
workers' interests. There are significant gaps in the proposed regime, 
however, including the lack of a clear enforcement mechanism for 
failure or refusal by an employer to engage in good faith collective 
bargaining or other obligations. Moreover, there is a substantial risk 
that existing unions will be dominated by employers under the proposed 
labor relations scheme, particularly in industries with oligopolistic 
structures. Final approval of a new code is not expected until the 
spring of 2002, at the earliest.
    c. Prohibition of Forced or Compulsory Labor: The Labor Code 
prohibits forced or compulsory labor by adults and children. There are 
documented cases of soldiers being sent by their superior officers to 
perform work for private citizens or organizations. Such labor may 
violate military regulations and, if performed by conscripts, would be 
an apparent violation of ILO convention 29 on forced labor.
    d. Minimum Age for Employment of Children: The Labor Code prohibits 
regular employment for children under the age of 16 and also regulates 
the working conditions of children under the age of 18, including 
banning dangerous, nighttime and overtime work. Children may, under 
certain specific conditions, work in apprenticeship or internship 
programs at the ages of 14 and 15. Accepted social prohibitions against 
the employment of children and the availability of adult workers at low 
wage rates combine to prevent widespread abuse of child labor 
legislation. The government prohibits forced and bonded labor by 
children, and there have been no reports that it occurred. The increase 
in the number of children working and living on the streets is largely 
the result of drastic economic changes and a deterioration in the 
social service infrastructure.
    e. Acceptable Conditions of Work: The Labor Code provides for a 
standard workweek of 40 hours, with at least one 24-hour rest period. 
The law requires premium pay for overtime work or work on holidays. 
While the overall problem of nonpayment of wages has diminished 
greatly, wage arrears in June 2001 equaled over $1.14 billion. The 
monthly minimum wage of $10.20 (300 rubles) remains below the official 
subsistence level of $51 (1,507 rubles) and approximately 31 percent of 
the population have incomes below this survival level. Workers' freedom 
to move in search of new employment is constrained economically and is 
further limited by the system of residency permits, which is still in 
use in cities such as Moscow and St. Petersburg. The law establishes 
minimal conditions of workplace safety and worker health, but these 
standards are not effectively enforced.
    f. Rights in Sectors with U.S. Investment: Observance of worker 
rights in sectors with significant U.S. investment (petroleum, 
telecommunications, food, aerospace, construction machinery, and 
pharmaceuticals) did not significantly differ from observance in other 
sectors. There are no export processing zones. Worker rights in the 
special economic zones/free trade zones are fully covered by the 
existing Labor Code and are the same as in other parts of the country.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  496
Total Manufacturing.........  ...........  138
  Food & Kindred Products...  157          .............................
  Chemicals & Allied          -73          .............................
   Products.
  Primary & Fabricated        (\1\)        .............................
   Metals.
  Industrial Machinery and    3            .............................
   Equipment.
  Electric & Electronic       2            .............................
   Equipment.
  Transportation Equipment..  0            .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  -76
Banking.....................  ...........  3
Finance/Insurance/Real        ...........  3
 Estate.
Services....................  ...........  -294
Other Industries............  ...........  366
    Total All Industries....  ...........  635
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                                 SPAIN


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Real GDP (1995 Prices) \2\...........     538.4      484.7      487.6
  Real GDP Growth (pct) \3\............       4.0        4.1        3.0
  GDP (At Current Prices)..............     599.3      558.3      580.7
  GDP by Sector:
    Agriculture........................      21.1       18.3       19.1
    Industry...........................     120.0      109.3      113.7
    Construction.......................      44.5       44.6       43.5
    Services...........................     356.1      332.1      345.4
    Government.........................      57.7       54.1       56.2
  Per Capita GDP (US$).................    14,957     13,992     14,554
  Labor Force (000s)...................    16,423     16,844     17,000
  Unemployment Rate (pct)..............      15.9       14.1       12.7
 
Money and Prices (annual percentage
 growth):
  Money Supply (M2)....................       6.0        3.7        3.0
  Consumer Price Inflation.............       3.0        4.0        3.3
  Exchange Rate (PTA/US$ annual             156.3    180.678      185.0
   average)............................
 
Balance of Payments and Trade:
  Total Exports FOB \4\................     111.4      113.7        127
    Exports to United States \4\.......       4.8        5.5        6.4
  Total Imports CIF \4\................     146.3      153.4      171.0
    Imports from United States \4\.....       7.9        8.0        9.0
  Trade Balance \4\....................     -34.9      -39.7      -44.0
    Balance With United States \4\.....      -3.1       -2.5       -2.6
  External Public Debt.................      66.4       61.1       60.0
  Fiscal Deficit/GDP (pct).............       1.1        0.3        0.0
  Debt Service Payments (Paid).........       N/A        N/A        N/A
  Gold and Foreign Exchange Reserves...      39.8       35.2       36.0
------------------------------------------------------------------------
 Sources: Bank of Spain, Spanish National Institute of Statistics
 
\1\ 2001 figures are all estimates based on available monthly data in
  June.
\2\ GDP at factor cost. GDP appears lower in 2000 and 2001 due to
  exchange rate fluctuations.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade. Spanish Customs.


1. General Policy Framework
    Spain's economy continues to perform well. The Government of Spain 
estimates 3 percent GDP growth for the year 2001, a deceleration from 
the 4.1 percent growth in GDP for 2000. Thus far, growth continues to 
be broadly based and is supported by the services sector, agriculture, 
construction, consumer demand, and capital good investment. Growth 
prospects have been dampened in part due to the effects of the global 
economic slowdown.
    Throughout the 1990s much of Spain's economic policy had focused on 
meeting Maastricht targets so that Spain could become one of the 
founding members of the euro. These policies have continued in the 
guise of the Stability Pact, which, if anything, has a bias toward even 
stricter fiscal policy than the preceding agreement. Together these 
policies have provided continuing benefits in the form of lower 
interest rates, which in turn have promoted investment, construction, 
and consumer demand. This increased economic activity has provided 
increased income and higher tax receipts, which have allowed Spain to 
handily meet government deficit/GDP targets. Government fiscal 
restraint, higher tax receipts, and lower interest on government debt, 
courtesy of lower euro interest rates, should allow the government's 
budget deficit/GDP ratio to fall to 0.4 percent in 2001. The 
government's overall debt/GDP ratio should fall to 60 percent in 2001.
    Although high compared to EU averages, Spain's current unemployment 
rate of 12.7 percent is Spain's lowest level in over a decade. 
Employment growth in early 2001 was underwritten by changes in 2000 
that provided flexibility in hiring practices. Recently released 
monthly unemployment figures show slight increases in unemployment 
starting in July 2001.
2. Exchange Rate Policy
    The Spanish peseta/euro rate was fixed on January 1, 1999, at 
166.386 pesetas to the euro. Average dollar/euro rate through July 2001 
was 0.893 or 186.6 pesetas to the dollar. The rate in September 2001 
was 1 euro equals $0.904
3. Structural Policies
    Spain has eliminated tariff barriers for imports from other EU 
countries and applies common EU external tariffs to imports from non-EU 
countries. Similarly, Spain follows the U.S.-EU mutual recognition 
agreements in its application of certain nontariff regulations and 
conformity assessment procedures applied to certain goods from the 
United States.
    Spain requires import licenses and imposes quotas on certain 
industrial products. While there are no quotas on U.S.-origin 
manufactured products, Spain still requires import documents for some 
goods, which are described below. Neither of the following documents 
constitutes a trade barrier for U.S.-origin goods:

          Import Authorization (autorizacion administrativa de 
        importacion) is used to control imports which are subject to 
        quotas. Although there are no quotas against U.S. goods, this 
        document may still be required if part of the shipment contains 
        products or goods produced or manufactured in a third country. 
        In essence, for U.S.-origin goods, the document is used for 
        statistical purposes only or for national security reasons;
          Prior Notice of Imports (notificacion previa de importacion) 
        is used for merchandise that circulates in the EU customs union 
        area, but is documented for statistical purposes only. The 
        importer must obtain the document and present it to the general 
        register.

    Importers apply for import licenses at the Spanish general register 
of Spain's secretariat of commerce or any of its regional offices. The 
license application must be accompanied by a commercial invoice that 
includes freight and insurance, the C.I.F. price, net and gross weight, 
and invoice number. License application has a minimum charge. Customs 
accepts commercial invoices by fax. The license, once granted, is 
normally valid for six months but may be extended if adequate 
justification is provided.
    Not infrequently, U.S. products face rigorous application of import 
requirements. Goods that are shipped to a Spanish customs area without 
proper import licenses or declarations are subject to considerable 
delay, may run up substantial demurrage charges, and have recently been 
rejected outright. U.S. exporters should ensure, prior to making 
shipments, that the necessary licenses have been obtained by the 
importing party. Also, U.S. exporters should have their importer 
confirm with Spanish customs whether any product approvals or other 
special certificates will be required for the shipment to pass customs.
    Current Investment Law complies with all EU regulations. Non-EU 
resident investors must obtain Spanish government authorization to 
invest in broadcasting (signatories to the WTO Telecoms Agreement are 
exempt from this requirement), gaming, air transport, or defense. EU 
resident companies (i.e. companies deemed European under article 58 of 
the Treaty of Rome) are free from almost all restrictions.
4. Debt Management Policy
    Almost 30 percent of Spanish medium and long-term debt is held by 
non-residents. Approximately 21 percent of Spanish government debt is 
short-term (less than one year) and 79 percent is long-term (i.e. 
maturities greater than five years).
    At the end of August 2001, international reserves at the Bank of 
Spain totaled 39.1 billion euros or $35.2 billion.
5. Significant Barriers to U.S. Exports:
    In general, EU agreements and practices determine Spain's trade 
policies. Within the European Union, the European Commission has 
authority for developing most aspects of EU-wide external trade policy, 
and most trade barriers faced by U.S. exporters in EU member states are 
the result of common EU policies. Such trade barriers include: the 
import, sale and distribution of bananas; restrictions on wine exports; 
local (EU) content requirements in the audiovisual sector; standards 
and certification requirements (including those related to aircraft and 
consumer products); product approvals and other restrictions on 
agricultural biotechnology products; sanitary and phytosanitary 
restrictions (including a ban on import of hormone-treated beef); 
export subsidies in the aerospace and shipbuilding industries; and 
trade preferences granted by the EU to various third countries. A more 
detailed discussion of these and other barriers can be found in the 
country report for the European Union.
    Import Restrictions: Under the EU's Common Agricultural Policy 
(CAP), Spanish farm incomes are protected by direct payments and 
guaranteed farm prices that are higher than world prices. One of the 
mechanisms for maintaining this internal support are high external 
tariffs that effectively keep lower priced imports from entering the 
domestic market to compete with domestic production. In compliance with 
the Uruguay Round agreement all import duties on agricultural products 
have been reduced by an average of 20 percent, though in sensitive 
sectors some tariffs remain at prohibitively high levels.
    In addition to these mechanisms, the EU employs a variety of strict 
animal and plant health standards which act as barriers to trade. At 
times, these regulations end up severely restricting or prohibiting 
Spanish imports of certain plant and livestock products. One of the 
most glaring examples of these policies is the EU ban on imports of 
hormone-treated beef, imposed in 1989 with the stated objective of 
protecting consumer health. Despite a growing and widespread use of 
illegal hormones in beef production in the EU, including in Spain, the 
EU continues to ban U.S. beef originating from feedlots where growth 
promoters have been used safely and under strict regulation for many 
years. Despite two WTO rulings (original case and appeal) requiring the 
EU to remove the ban, the EU ban on imports of hormone treated beef 
remains in effect.
    One important aspect of Spain's EU membership is how EU-wide 
phytosanitary regulations, and regulations that govern food 
ingredients, labeling and packaging impact the Spanish market for 
imports of U.S. agricultural products. The majority of these 
regulations took effect on January 1, 1993, when EU ``single market'' 
legislation was fully implemented in Spain. Agricultural and food 
product imports into Spain are subject to the same regulations as in 
other EU countries.
    While many restrictions that had been in operation in Spain before 
the transition have now been lifted, for certain products the new 
regulations impose additional import requirements. For example, Spain 
requires any foodstuff that has been treated with ionizing radiation to 
carry an advisory label. In addition, a lot marking is required for any 
packaged food items. Spain, in adhering to EU-wide standards, continues 
to impose strict requirements on product labeling, composition, and 
ingredients. Like the rest of the EU, Spain prohibits imports that do 
not meet a variety of unusually strict product standards. Food 
producers must conform to these standards, and importers of these 
products must register with government health authorities prior to 
importation.
    Faced with the loss of the Spanish feed grain market as a result of 
Spain's membership in the EU, the United States negotiated an 
enlargement agreement with the EU in 1987, which established a 2.3 
million ton annual quota for Spanish imports of corn and specified non-
grain feed ingredients and sorghum from non-EU countries. The Uruguay 
Round agreement effectively extended this agreement indefinitely.
    As an EU member state, Spain must also abide by EU procedures for 
approving the commercialization of products generated with the aid of 
biotechnology. The EU's lengthy and non-transparent process for 
approving bioengineered agricultural products has halted U.S. corn 
exports to Spain. Due to the EU's failure to approve all but two 
transgenic corn varieties, U.S. corn exports to Spain have virtually 
been eliminated, costing U.S. exporters about $100-150 million per 
year. The figure for the entire EU would be somewhat higher. Unless the 
EU takes steps to lift its moratorium on approval of transgenic 
products and streamlines its biotech product approval process, U.S. 
exporters will continue to be unable to ship U.S. corn to Spain. The 
United States remains interested in maintaining access to the Spanish 
feed grain market and will continue to press the EU on this issue and 
is currently exploring the concept of providing USDA certified, 
identity preserved corn shipments, containing only EU approved 
varieties.
    Telecommunications: Spain liberalized its telecommunications market 
beginning in 1998. Prior to this date, the government phased in 
competition in basic telephony through licenses granted to privatized 
second operator Retevision and to third operator Lince/Uni2 (France 
Telecom), in addition to incumbent operator Telefonica. Cable operators 
were allowed to provide basic telephony beginning in 1998, but only by 
using their own networks; that is, they could provide basic telephony 
by interconnecting with the Telefonica or Retevision networks. This, in 
combination with several other mitigating factors, such as bureaucratic 
obstacles at the municipal level, the arrival of digital satellite 
television, and problems with new entrants forging interconnection 
agreements that are unbundled, transparent, timely and cost-oriented, 
has resulted in a slow start for the establishment of the cable sector 
in Spain.
    Digital television, especially via satellite, has emerged as a 
promising industry in the Spanish market. There are three digital 
television platforms, Via Digital, Canal Satellite Digital, and Onda 
Digital/Retevision (over a terrestrial network), which currently offer 
digital television programming. Spain's mobile telephony market has 
also experienced a very rapid growth in subscribers. The government 
granted four licenses for third generation mobile telephony in 2000, 
and six licenses for wireless local telephone services. New 
opportunities are emerging in advanced telecommunications services, 
including the internet and high-speed data transmission. Finally, the 
government established the Telecommunications Market Commission (CMT) 
as an independent regulatory authority to oversee all activity in this 
sector.
    Government Procurement: Spain's Uruguay Round government 
procurement obligations took effect on January 1, 1996. Under the 
bilateral U.S.-EU government procurement agreement, Spain's obligations 
took effect also on January 1, 1996, except those for services which 
took effect on January 1, 1997. Offset requirements are common in 
defense contracts and some large non-defense related and public sector 
purchases (e.g. commercial aircraft and satellites).
    Television Broadcasting Content Requirements: In 1999, the Spanish 
Parliament adopted legislation that incorporated the EU Television 
without Frontiers Directive and revised the 1994 Spanish law on 
television broadcasting. The 1999 law explicitly requires television 
operators to reserve 51 percent of their annual broadcast time for 
European audiovisual works. It also created an ``investment quota,'' 
obliging television operators to devote 5 percent of their annual 
earnings to finance European feature length films and films for 
European television. This investment quota was further defined in new 
July 2001 legislation (60 percent of the investment quota must be spent 
on audiovisual works in one of Spain's official languages).
    Motion Picture Screen Quotas and Dubbing Licenses: In 1997, the 
government adopted implementing regulations for the 1994 Cinema Law, 
which reserved a portion of the theatrical market for EU-produced 
films. Thanks to successful industry-government negotiations, the new 
regulations eased the impact of the 1994 law on non-EU producers and 
distributors in regard to screen quotas and dubbing licenses. The 
screen quotas finally adopted required exhibitors to show one day of 
EU-produced film for every three days of non-EU-produced film instead 
of the original ratio of one to two. In July 2001, the Spanish 
Parliament adopted new legislation that maintains the film screen 
quotas. The new law notes that it is possible that the screen quotas 
may be eliminated in five years.
    Despite remaining protectionist elements, Spain's theatrical film 
system has been modified sufficiently in recent years so that it is no 
longer a major source of trade friction. In 1998, the Catalan regional 
government adopted a decree under its new law on language policy, which 
called for both dubbing and screen quotas in order to increase the 
number of films being shown in the Catalan language. Due to strong 
industry opposition, the regional government annulled the legislation 
in 2000.11Product Standards and Certification Requirements: Product 
certification requirements have been liberalized considerably since 
Spain's entry into the EU leading to increased transparency of process. 
National regulations in the telecommunications sector now conform to EU 
directives. CE registration in any EU member state is recognized in 
Spain, which shortens the approval process particularly for telecom and 
medical equipment. There is still some uncertainty as to whether the 
earlier exemption from homologation and certification requirements for 
equipment imported for military use is still valid.
    Pharmaceuticals and drugs still must go through an approval and 
registration process with the Ministry of Health requiring several 
years unless previously registered in an EU member state or with the 
London-based EU pharmaceutical agency, in which case the process is 
shortened to a few months. Vitamins are covered under this procedure; 
however, import of other nutritional supplements is prohibited, and 
they are dispensed only at pharmacies. Spanish authorities have been 
cooperative in resolving specific trade problems relating to standards 
and certifications brought to their attention. The U.S.-EU Mutual 
Recognition Agreement, when fully implemented, will permit certain 
conformity assessments (e.g., product tests) to be performed in the 
United States to EU requirements. This should improve market access, 
reduce costs, and shorten the time required to market certain U.S. 
products in the EU.
    Aviation: Under the ``Open Skies'' aviation agreements that the 
United States has with most EU member states, there are no restrictions 
on bilateral routes, capacity or pricing. Spain is one of a few member 
states without an Open Skies agreement.
6. Export Subsidies Policies
    Spain aggressively uses ``tied aid'' credits to promote exports in 
Latin America, the Maghreb, and China. Such credits reportedly are 
consistent with the OECD arrangement on officially supported export 
credits.
    Total Spanish agricultural exports in 2000 totaled $16.4 billion. 
While the majority, typically 75 percent, of Spain's agricultural trade 
is confined to markets within the EU, some of Spain's exports are 
subsidized with EU funding and compete with the United States in third-
country markets. Most of this trade is destined for Eastern Europe or 
North Africa. Spanish products receiving the most EU export funding 
include sugar, rice, wine, red meat, and dairy products. Spain 
generally receives about $200 million annually in EU funds to directly 
subsidize agricultural exports (1999 = $222.2 million, 2000 = $194.4 
million). This export subsidy support is minor when compared to the 
$5.5-6.0 billion of domestic support Spain receives annually under the 
Common Agricultural Policy (CAP).
    The Spanish government has indicated that it is likely to provide 
financial support to Airbus for the development of the A380 megaliner. 
The terms of its financial support are not available at present.
7. Protection of U.S. Intellectual Property
    Spanish patent, copyright, and trademark laws all approximate or 
exceed EU levels of intellectual property protection. Spain is a party 
to the Paris, Berne, and Universal Copyright Conventions and the Madrid 
Accord on Trademarks. Government officials have said that their laws 
reflect genuine concern for the protection of intellectual property.
    In 1992, Spain enacted a modernized Patent Law, which increases the 
protection afforded patent holders. With this law, Spain's 
pharmaceutical process patent protection regime expired and product 
protection took effect. Given the long (10 to 12 years) research and 
development period required to introduce a new medicine into the 
market, industry sources point out that the effect of the new law will 
not be felt until 2002 or 2003. U.S. pharmaceutical manufacturers in 
Spain complain that this limits effective patent protection to 
approximately eight years and would like to see the patent term 
lengthened. Of at least equal concern to the U.S. industry is the issue 
of parallel imports, i.e. lower-priced products manufactured in Spain 
that are diverted to northern European markets where they are sold at 
higher prices. U.S. companies have suffered losses as a result. In 
2000, the government introduced an amendment to Article 100 of the 
Medicine's Act in an attempt to address the issue, but it has not 
resolved the problem.
    Spain's Trademark Law incorporates by reference the enforcement 
procedures of the Patent Law, defines trademark infringements as unfair 
competition and creates civil and criminal penalties for violations. 
National authorities seem committed to serious enforcement efforts and 
there continue to be numerous civil and criminal actions to curb the 
problem of trademark infringement. To combat this problem in the 
textile and leather goods sector, the government began to promote the 
creation and sale of devices to protect trademark goods and to train 
police and customs officials to detect counterfeit products more 
effectively.
    Spain further revised its patent and trademark laws in 2001 to 
facilitate an easier application and approval process, increase 
consumer protection, incorporate new technology into procedures, and 
further synchronize Spanish laws with modern EU regulations and other 
multilateral agreements. Major changes to the system, to be implemented 
fully by July 2002, will allow applicants to enjoy a 15 percent 
discount on fees using electronic applications, to apply for multiple 
classes of trademarks and patents with a single application, and to be 
informed earlier of the chances of approval. Changes also include 
increased minimum fines and punishments for trademark violations, more 
legal recourses for trademark and patent holders, and allowing consumer 
protection groups to participate in the application process. Spain has 
also introduced the concept of a ``notorious trademarks'', well-known 
trademarks with high-volume sales and value which will enjoy new 
special protections, as well as including protections against third-
party use of a registered trademark in web domains. In October 2001, 
the Spanish Patent Office (OEPM) was authorized to conduct preliminary 
examinations of international patents, the only office to accept 
applications in the Spanish language.
    In September 1999, in a trademark case in which a well-known U.S. 
apparel manufacturer complained about infringement of its brand name, 
the Spanish Supreme Court handed down a decision denying it the right 
to continue marketing its products under its trademark name in Spain. 
The Spanish Constitutional Court has accepted the case for review. A 
decision is still pending.
    Spanish Copyright Law provides a solid framework for intellectual 
property rights protection of movies, videocassettes, sound recordings, 
and software. It includes provisions that allow for unannounced 
searches in civil lawsuits and searches to take place under these 
provisions. Spain has a low incidence of motion picture, i.e. video, 
and audiocassette piracy. The Spanish government prohibits the running 
of cable across public thoroughfares and also strictly enforces the 
Copyright Law that stipulates that no motion picture can be shown 
without authorization of the copyright holder.
    Software piracy has periodically been a serious problem for Spain, 
leading to its inclusion on the Special 301 ``watch list'' in 1999. 
Measures instituted by the Spanish Government to improve property 
rights for software in recent years led to Spain's removal from the 
Special 301 list in 2001.
8. Worker Rights
    a. The Right of Association: All workers except military personnel, 
judges, magistrates and prosecutors are entitled to form or join unions 
of their own choosing without previous authorization. Self-employed, 
unemployed, and retired persons may join but may not form unions of 
their own. There are no limitations on the right of association for 
workers in special economic zones. Under the constitution, trade unions 
are free to choose their own representatives, determine their own 
policies, represent their members' interests, and strike. They are not 
restricted or harassed by the government and maintain ties with 
recognized international organizations.
    b. The Right to Organize and Bargain Collectively: The right to 
organize and bargain collectively was established by the workers 
statute of 1980. Trade union and collective bargaining rights were 
extended to all workers in the public sector, except the military 
services, in 1986. Public sector collective bargaining in 1989 was 
broadened to include salaries and employment levels. Collective 
bargaining is widespread in both the private and public sectors. Sixty 
percent of the working population is covered by collective bargaining 
agreements although only a minority are actually union members. Labor 
regulations in free trade zones and export processing zones are the 
same as in the rest of the country. There are no restrictions on the 
right to organize or on collective bargaining in such areas.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is outlawed and is not practiced. Legislation is effectively 
enforced.
    d. Minimum Age for Employment of Children: The legal minimum age 
for employment as established by the workers statute is 16. The 
Ministry of Labor and Social Security is primarily responsible for 
enforcement. The minimum age is effectively enforced in major 
industries and in the service sector. It is more difficult to control 
on small farms and in family-owned businesses. Legislation prohibiting 
child labor is effectively enforced in the special economic zones. The 
workers statute also prohibits the employment of persons under 18 years 
of age at night, for overtime work, or for work in sectors considered 
hazardous by the Ministry of Labor and Social Security and the unions.
    e. Acceptable Conditions of Work: Workers in general have 
substantial, well defined rights. A 40 hour workweek is established by 
law. Spanish workers enjoy 14 paid holidays a year (12 assigned by 
central government and 2 by autonomous authorities) and a month's paid 
vacation. The employee receives his/her annual salary in 14 payments: 
one paycheck each month and an ``extra'' check in June and in December. 
The minimum wage is revised every year in accordance with the consumer 
price index. Government mechanisms exist for enforcing working 
conditions and occupational health and safety conditions, but 
bureaucratic procedures are cumbersome.
    f. Rights in Sectors with U.S. Investment: Conditions in sectors 
with U.S. investment do not differ from those in other sectors of the 
economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  149
Total Manufacturing.........  ...........  8,603
  Food & Kindred Products...  1,593        .............................
  Chemicals & Allied          1,832        .............................
   Products.
  Primary & Fabricated        1,277        .............................
   Metals.
  Industrial Machinery and    123          .............................
   Equipment.
  Electric & Electronic       1,020        .............................
   Equipment.
  Transportation Equipment..  1,838        .............................
  Other Manufacturing.......  921          .............................
Wholesale Trade.............  ...........  1,608
Banking.....................  ...........  2,096
Finance/Insurance/Real        ...........  1,176
 Estate.
Services....................  ...........  559
Other Industries............  ...........  370
    Total All Industries....  ...........  14,561
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 SWEDEN


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................     240.3      224.5      206.6
  Real GDP Growth (pct) \3\............       4.1        3.6        1.6
  GDP by Sector:
    Agriculture........................       7.0        6.5        6.0
    Manufacturing......................      45.5       43.6       39.4
    Services...........................     107.3      101.2       92.3
    Government.........................      48.5       43.3       39.0
  Per Capita GDP (US$) \2\.............    27,124     25,333     23.213
  Labor Force (000s)...................     4,308      4,362      4,405
  Unemployment Rate (pct)..............       5.6        4.7        4.0
 
Money and Prices (annual percentage
 growth):
  Money Supply Growth (M3) \4\.........       6.8        6.1        1.0
  Consumer Price Inflation.............       0.3        1.3        2.6
  Exchange Rate (SEK/US$)..............      8.26       9.16      10.24
 
Balance of Payments and Trade:
  Total Exports FOB \5\................      84.8       87.0       77.6
    Exports to United States \6\.......       7.8        8.2        7.9
  Total Imports CIF \5\................      68.6       72.8       66.0
    Imports from United States \6\.....       4.0        4.9        3.9
  Trade Balance \5\....................     15.55      14.08      12.50
    Balance with United States \6\.....       3.9        5.0        5.4
  External Public Debt \7\.............      35.9       27.4       23.1
  Fiscal Balance/GDP (pct).............       3.9        1.3        8.2
  Current Account Surplus/GDP (pct)....       3.7        2.9        1.9
  Foreign Debt Service Payments/GDP           5.4        5.7        6.6
   (pct)...............................
  Gold and Foreign Exchange Reserves...      18.4       17.9       14.7
  Aid from United States...............         0          0          0
  Aid from All Other Sources...........         0          0          0
------------------------------------------------------------------------
\1\ 2001 figures are all forecasted before the September 11 terrorist
  attacks on the United States. The effect of the attacks on the Swedish
  economy is still uncertain, but experts all agree that growth for 2001
  will be lower than previously estimated.
\2\ Decrease due to exchange rate fluctuations.
\3\ Percentage changes calculated in local currency.
\4\ Source: The Central Bank. M3 is the measurement used in Sweden, very
  close to a potential Swedish M2 figure.
\5\ Merchandise trade.
\6\ Source: U.S. Census Bureau 2001 figures are estimates based on data
  available through July.
\7\ Source: Swedish National Debt Office.


1. General Policy Framework
    Sweden is an advanced, industrialized country with a high standard 
of living, extensive social services, a modern distribution system, 
excellent transport and communications links with the world, and a 
skilled and educated work force. Sweden exports a third of its Gross 
Domestic Product (GDP) and is a strong supporter of liberal trading 
practices. Sweden became a member of the European Union (EU) on January 
1, 1995, by which point it had already harmonized much of its 
legislation and regulation with the EU's as a member of the European 
Economic Area.
    Sweden uses both monetary and fiscal policy to achieve economic 
goals. Active labor market practices also are particularly important. 
The Central Bank is by law independent in pursuit of its avowed goal of 
price stability. Fiscal policy decisions in the late 1980s to lower tax 
rates while maintaining extensive social welfare programs swelled the 
government budget deficit and public debt, most of which is financed 
domestically. Since the beginning of 1995, however, Sweden has made 
impressive strides with its economic convergence program, having 
restored macroeconomic stability and created the conditions for 
moderate, low-inflation economic growth. The government intends to run 
budget surpluses for the foreseeable future in order to assure that the 
public pension system and other aspects of the welfare state are 
adequately funded in the face of expected demographic changes.
    During 1995 and 1996, Sweden pulled out of its worst and longest 
recession since the 1930s (GDP declined by six percent from 1991 to 
1993). Unemployment started to come down in 1998, from average figures 
as high as 12 to 14 percent in the mid-1990s, now down to around 7.3 
percent. (Swedes quote two unemployment figures, open and ``hidden.'' 
``Hidden'' unemployment, those in government training and work 
programs, accounts for 2.6 percentage points of total unemployment). In 
1992, the Swedish krona came under pressure and was floated late that 
year. Swedish interest rates soared but have come down rapidly starting 
in 1996 and are now on an EU level.
    Sweden's export sector is strong, resulting in large trade balance 
surpluses and solid current account surpluses since 1994. Domestic 
demand started to pick up in 1997 and has contributed to the growth 
since that year. Domestic demand is now driving Sweden's strong growth 
(the growth figure for 2000 is estimated at 3.9 percent), even though 
the export sector has recovered better than expected from the effects 
of the Asia crisis. Structural changes in recent years have prepared 
the way for future economic growth. The social democratic government at 
the end of the 1980s and the conservative coalition government at the 
beginning of the 1990s deregulated the credit market; removed foreign 
exchange controls; reformed taxes; lifted foreign investment barriers; 
and began to privatize government-owned corporations.
2. Exchange Rate Policies
    From 1977 to 1991, the krona was pegged to a trade-weighted basket 
of foreign currencies in which the dollar was double weighted. From 
mid-1991, the krona was pegged to the ecu. Sweden floated the currency 
in November 1992 after briefly defending the krona during the 
turbulence in European financial markets. Although Sweden is an EU 
member, it has chosen not to join the European Monetary Union and does 
not currently participate in the European Exchange Rate Mechanism.
    Sweden dismantled a battery of foreign exchange controls in the 
latter half of the 1980s. No capital or exchange controls remain. (The 
central bank does track transfers for statistical purposes).
3. Structural Policies
    Sweden's tax burden is 52.2 percent of GDP for 2001. Central 
government expenditure during the recent severe recession was nearly 75 
percent of GDP, and in 2001 it will come down to 54 percent. The 
maximum marginal income tax rate on individuals is 56.7 percent. 
Effective corporate taxes are comparatively low at 28 percent, though 
social security contributions add about 32 percent to employers' gross 
wage bills. The Value-Added Tax has a general rate of 25 percent, a 
lower rate of 12 percent for food, domestic transportation, and 
tourist-related services, and a rate of 6 percent for daily and weekly 
papers, cultural events, and commercial sports.
    Trade in industrial products between Sweden, other EU countries, 
and EFTA countries is not subject to customs duty, nor are a 
significant proportion of Sweden's imports from developing countries. 
When Sweden joined the EU, its import duties were among the lowest in 
the world, averaging less than five percent ad valorem on finished 
goods and around three percent on semi-manufactured. Duties were raised 
slightly on average to meet the common EU tariff structure. Most raw 
materials are imported duty free. There is very little regulation of 
exports other than military exports and some dual use products that 
have potential military or nonproliferation application.
    Sweden began abolishing a complicated system of agricultural price 
regulation in 1991. Sweden's EU membership and consequent adherence to 
the EU's common agricultural policy has brought some re-regulation of 
agriculture.
4. Debt Management Policies
    Central government borrowing guidelines require that most of the 
national debt be in Swedish crowns; that the borrowing be predictable 
in the short term and flexible in the medium term; that the government 
(that is, the Cabinet) direct the extent of the borrowing; and that the 
government report yearly to the parliament.
    Sweden's Central Bank and National Debt Office borrowed heavily in 
foreign currencies starting from the fall of 1992, increasing the 
central government's foreign debt five-fold to about a third of the 
public debt. Since then, the ratio has come down to one fifth of public 
debt. Management of the increased debt level so far poses no problems 
to the country, but interest payments on the large national debt grew 
rapidly in the early 1990s. Total debt is declining from early decade 
highs as a result of budgetary surpluses and strong economic growth. 
Gross government debt is projected to drop to 52.4 percent of GDP in 
2001 and to 50.2 in 2002.
5. Significant Barriers to U.S. Exports
    Sweden is open to imports and foreign investment and it campaigns 
vigorously for free trade in the World Trade Organization (WTO) and 
other fora. Import licenses are not required except for items such as 
military material, hazardous substances, certain agricultural 
commodities, fiberboard, ferro alloys, some semi-manufactures of iron, 
and steel. Sweden enjoys licensing benefits under section 5(k) of the 
U.S. Export Administration Act. Sweden makes wide use of EU and 
international standards, labeling, and customs documents in order to 
facilitate exports.
    Sweden has harmonized laws and regulations with the EU's. Sweden is 
now open to virtually all foreign investment. Foreigners may buy and 
sell any corporate share listed on the Stockholm Stock Exchange. 
Corporate shares may have different voting strengths.
    Sweden does not offer special tax or other inducements to attract 
foreign capital. Foreign-owned companies enjoy the same access as 
Swedish-owned enterprises to the country's credit market and government 
incentives to business such as regional development or worker training 
grants.
    Public procurement regulations have been harmonized with EU 
directives and apply to central and local government purchases. Sweden 
is required to publish all government procurement opportunities in the 
European Community Official Journal. Sweden participates in all 
relevant WTO codes concerned with government procurement, standards, 
etc. There are no official counter-trade requirements.
6. Export Subsidies Policies
    The government provides basic export promotion support through the 
Swedish Trade Council, which it and industry fund jointly. The 
government and industry also fund jointly the Swedish Export Credit 
Corporation, which grants medium and long-term credits to finance 
exports of capital goods and large-scale service projects.
    Sweden's agricultural support policies have been adjusted to the 
EU's common agricultural policy, including intervention buying, 
production quotas, and increased export subsidies.
    There are no tax or duty exemptions on imported inputs, no resource 
discounts to producers, and no preferential exchange rate schemes. 
Sweden is a signatory to the GATT subsidies code.
7. Protection of U.S. Intellectual Property
    Swedish law generally provides adequate protection of all property 
rights, including intellectual property. As a member of the European 
Union, Sweden adheres to a series of multilateral conventions on 
industrial, intellectual, and commercial property. Swedish copyright 
law protects computer programs and databases. Enforcement of the law, 
however, has been less than ideal, although a contradiction between 
Sweden's constitution and its international obligations to protect 
unpublished, copyrighted material has been resolved in a satisfactory 
manner. Still, there are some minor restrictions of the rights granted 
under Swedish Copyright Laws that violates Sweden's national treatment 
obligations arising from the Berne Convention and the TRIPS agreement.
    The courts are efficient and honest. Sweden supports efforts to 
strengthen international protection of intellectual property rights, 
often sharing U.S. positions on these questions. Sweden is a member of 
the World Intellectual Property Organization and is a party to the 
Berne Copyright and Universal Copyright Conventions and to the Paris 
Convention for the Protection of Industrial Property, as well as to the 
Patent Cooperation Treaty. As an EU member, Sweden has undertaken to 
adhere to a series of other multilateral conventions dealing with 
intellectual property rights.
8. Worker Rights
    a. The Right of Association: Laws protect the freedom of workers to 
associate and to strike, as well as the freedom of employers to 
organize and to conduct lock-outs. These laws are fully respected. 
Around 80 percent of Sweden's work force belongs to trade unions. 
Unions operate independently of the government and political parties, 
though the largest federation of unions has always been linked with the 
largest political party, the Social Democrats.
    b. The Right to Organize and Bargain Collectively: Labor and 
management, each represented by a national organization by sector, 
negotiate framework agreements every two to three years. More detailed 
company agreements are reached locally. The law provides both workers 
and employers effective mechanisms, both informal and judicial, for 
resolving complaints.
    c. Prohibition of Forced or Compulsory Labor: The law prohibits 
forced or compulsory labor, and the authorities effectively enforce 
this ban.
    d. Minimum Age for Employment of Children: Compulsory nine-year 
education ends at age 16, and the law permits full-time employment at 
that age under supervision of local authorities. Employees under age 18 
may work only during daytime and under supervision. Union 
representatives, police, and public prosecutors effectively enforce 
this restriction.
    e. Acceptable Conditions of Work: Sweden has no national minimum 
wage law. Wages are set by collective bargaining contracts, which 
nonunion establishments usually observe. The standard legal work week 
is 40 hours or less. Both overtime and rest periods are regulated. All 
employees are guaranteed by law a minimum of five weeks a year of paid 
vacation; many labor contracts provide more. Government occupational 
health and safety rules are very high and are monitored by trained 
union stewards, safety ombudsmen, and, occasionally, government 
inspectors.
    f. Rights in Sectors with U.S. Investment: The five worker-right 
conditions addressed above pertain in all firms, Swedish or foreign, 
throughout all sectors of the Swedish economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--2000
                      [In Millions of U.S. Dollars]
------------------------------------------------------------------------
          Category                                   Amount
------------------------------------------------------------------------
Petroleum...................  ...........  93
Total Manufacturing.........  ...........  2,860
  Food & Kindred Products...  -27          .............................
  Chemicals & Allied          206          .............................
   Products.
  Primary & Fabricated        (\1\)        .............................
   Metals.
  Industrial Machinery and    293          .............................
   Equipment.
  Electric & Electronic       846          .............................
   Equipment.
  Transportation Equipment..  183          .............................
  Other Manufacturing.......  (\1\)        .............................
Wholesale Trade.............  ...........  354
Banking.....................  ...........  (\1\)
Finance/Insurance/Real        ...........  6,022
 Estate.
Services....................  ...........  1,141
Other Industries............  ...........  (\1\)
    Total All Industries....  ...........  11,371
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.
 
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 ______
                                 

                              SWITZERLAND


                         Key Economic Indicators
        [In Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1999       2000     \1\ 2001
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\......................     259.3      241.1       60.8
  Real GDP Growth (pct) \3\............       1.5        3.0        1.7
   GDP by Sector:
    Agriculture........................       N/A        N/A        N/A
    Manufacturing......................       N/A        N/A        N/A
    Services...........................       N/A        N/A        N/A
    Government \4\.....................      37.7       34.1        8.9
  Per Capita GDP (US$) \5\.............    36,319     33,889     35,603
  Labor Force (000s) \6\...............     3,258      3,225        N/A
  Unemployment Rate--Average (pct) \7\.       2.7        2.0        1.8
 
Money and Prices (annual percentage
 growth):
  Money Supply (M3) \8\................       1.0       -1.6       -1.8
  Consumer Price Inflation (pct) \9\...       0.8        1.6        1.3
  Exchange Rate--Average (SFr/US$) \10\      1.50       1.69       1.70
 
Balance of Payments and Trade:
  Total Exports \11\...................      76.3       74.9       20.4
    Exports to U.S. \12\...............       8.7        8.7        4.6
  Total Imports \13\...................      75.6       76.1       20.2
    Imports from U.S. \12\.............       4.6        5.2        2.3
  Trade Balance \14\...................       0.7       -1.2        0.2
    Balance with U.S. \12\.............       4.1        3.5        2.3
  External Public Debt \15\............      68.2       64.0       63.3
  Fiscal Deficit/GDP (pct) \15\........       0.7       -1.1        N/A
  Current Account Surplus/GDP (pct)          11.6       12.9        9.8
   \16\................................
  Debt Service Payments/GDP (pct) \17\.       0.9        0.9        0.7
  Gold and Foreign Exchange Reserves         40.9       47.6       52.0
   \18\................................
  Aid from U.S.........................         0          0          0
  Aid from All Other Sources...........         0          0          0
------------------------------------------------------------------------
\1\ If 2001 figure is not noted as partial data, then it is an estimate.
\2\ 2001 figure is through March. 1999 figure through March was 61.0.
  2000 figure through March was 57.1.
\3\ 2001 figure is through March. 1999 figure through March was 0.6.
  2000 figure through March was 3.9.
\4\ Including Social Welfare Expenditures; 2001 figure is through March.
  1999 figure through March was 9.4. 2000 figure through March was 8.5.
\5\ Note: The Nominal GDP and the Average Population used in the
  calculation of the 2001 data are estimates. These figures are SFr
  421,500.003106 and 7.1319.106 persons, respectively.
\6\ Full-time equivalent employment; 2000 figures are provisional.
\7\ 2001 figure is a mean average of data through June. 1999 figure
  through June was 3.0. 2000 figure through June was 2.2.
\8\ 2001 figure is a mean average of data through June. 1999 mean
  average through Junewas 1.1. 2000 mean average through June was 1.6.
\9\ 2001 figure is a mean average of data through June. 1999 mean
  average through Junewas 0.5. 2000 mean average through June was 1.6.
\10\ 2001 figure is through June. 1999 figure through June was 1.47.
  2000 figure through June was 1.65.
\11\ 2001 figure is through March. 1999 figure through March was 17.9.
  2000 figure through March was 18.1.
\12\ 2001 figures are through June.
\13\ 2001 figure is through March. 1999 figure through March was 18.2.
  2000 figure through March was 18.5.
\14\ 2001 figure is through March. 1999 figure through March was -0.3.
  2000 figure through March was -0.3.
\15\ Federal government only (i.e. excluding cantons and communities).
\16\ 2001 figure is through March. 1999 figure through March was 10.4.
  2000 figure through March was 14.7.
\17\ Federal government only (i.e. excluding cantons and communities).
  Note: The GDP figure used in the calculation of the 2001 data is a
  bank estimate for the entire year--not the first quarter data
  specified in ``2001 Nominal GDP''. This figure is SFr 421.5 Billion.
\18\ 2001 figure is a mean average of data through June. 1999 mean
  average through June was 40.4. 2000 mean average through June was
  42.1.


1. General Policy Framework
    Switzerland has a highly developed, internationally oriented, and 
open market. The economy is characterized by a sophisticated 
manufacturing sector, a highly skilled workforce, and a large services 
sector (i.e., banking and insurance). Per capita GDP is virtually the 
highest in Europe while unemployment is practically the lowest.
    When Swiss voters decided in December 1992 to reject the European 
Economic Area (EEA) Treaty, Switzerland found itself in the awkward 
position of being located in the heart of Europe, but not part of the 
EEA or a member of the EU. With some two-thirds of its exports going to 
Europe, the government pursues policies aimed at maintaining 
Switzerland's competitiveness in Europe while seeking to diversify its 
export markets. The Swiss parliament and a subsequent public referendum 
both approved bilateral agreements, which Switzerland concluded with 
the EU in December of 1998, which cover seven different sectors. Before 
the agreements can take effect they must first be ratified by all 15 EU 
member states. Ratification has been concluded in every country except 
France, Ireland, and Belgium. These countries are expected to complete 
the process before the end of 2001.
    After strong economic growth during the eighties, the Swiss economy 
was western Europe's weakest between 1990-1996, with growth averaging 
around zero percent per year (unemployment, however, never rose above 
5.5 percent). As a result of the economic stagnation, the country ran 
up large, unprecedented (for Switzerland) deficits, causing a 
corresponding accumulation of public debt. A public initiative that 
passed in 1998 essentially requires the federal budget to be balanced 
by 2001. The government is on track to achieve this, due to strict 
control of expenditures and higher tax receipts thanks to improved 
economic growth. GDP growth of 1.5 percent in 1999 improved to 3.0 
percent in 2000 before falling back to an expected 1.7 percent in 2001. 
Expectations for 2002 are a fall in GDP growth to 1.8 percent.
    No systematic use is made of fiscal policy to stimulate the 
economy. The Swiss National Bank (SNB) is independent from the Finance 
Ministry. The primary objective of the SNB's policy is price stability. 
Monetary policy is conducted through discount rate adjustments and open 
market operations.
2. Exchange Rate Policies
    The Swiss franc is not pegged to any foreign currency. The SNB 
carefully watches for signs of upward pressure on the franc (the 
overvalued franc was partly to blame for the economic stagnation of the 
early/mid 1990s). The SNB has shown its willingness to follow an 
accommodating money supply policy, even to exceed its money supply 
growth targets when necessary, to minimize upward pressure on the 
franc.
3. Structural Policies
    Few structural policies have a significant effect on U.S. exports. 
Two exceptions are telecommunications and agriculture. In 1998, a new 
law took effect that has brought liberalization and privatization to 
the Swiss telecommunications sector, opening the market to investment 
and competition from foreign firms. Over 50 Swiss and foreign companies 
are now offering fixed line services. Mobile telephony is shared by the 
three operators Swisscom, Sunrise (Teledenmark), and Orange (France 
Telecom), all of which also own third generation mobile telephony 
licenses (UMTS). In total four such licenses were auctioned off in 
December 2000.
    Agriculture is heavily regulated and supported by the federal 
government. Legislation that took effect January 1, 1999, is gradually 
reducing direct government intervention in the market to set prices, 
but the high level of direct support for Swiss agricultural production 
will continue. The goal of the 1999 legislation is to reduce government 
regulation of the market while maintaining agricultural production at 
current levels through import protection and direct payments linked to 
environmental protection.
    In early 1996, a new Cartel Law came into effect, introducing the 
presumption that horizontal agreements setting prices, production 
volume, or territorial distribution diminish effective competition and 
are therefore unlawful. For years, Switzerland has had a heavily 
cartelized domestic economy. Over time, the effect of this law should 
be to improve competition generally in Switzerland. New draft 
legislation has been introduced in Parliament that would further 
strengthen competition laws by enhancing the impartiality of the 
government-appointed Competition Commission, and by allowing the 
government to punish firms for first offenses (currently punishment can 
only occur after a firm has received one warning).
    As part of its Uruguay Round commitments, Switzerland enacted 
legislation in 1996 providing for nondiscrimination and national 
treatment in public procurement at the federal level. A separate law 
makes less extensive guarantees at the cantonal and community levels.
4. Debt Management Policies
    As a net international creditor, debt management policies are not 
relevant to Switzerland.
5. Significant Barriers to U.S. Exports
    Import Licenses: Import licenses for many agricultural products are 
subject to tariff-rate quotas and tied to an obligation for importers 
to take a certain percentage of domestic production. Tariffs remain 
quite high for most agricultural products that are also produced in 
Switzerland.
    Services Barriers: The Swiss services sector features no 
significant barriers to U.S. exports. Foreign insurers wishing to do 
business in Switzerland are required to establish a subsidiary or a 
branch here. Foreign insurers may offer only those types of insurance 
for which they are licensed in their home countries. Until recently, 
the most serious barriers to U.S. exports existed in the area of 
telecommunications. However, with the privatization and liberalization 
that became effective in this sector in 1998, this market has been 
greatly opened to foreign competitors.
    Standards, Testing, Labeling, and Certification: The government 
must approve all genetically modified organism products before they can 
be sold and consumed in Switzerland. In addition, all food products 
with a genetically modified organism content above one percent must be 
labeled as such. A new law took effect in January 2000, which 
stipulates that fresh meat and eggs from abroad that are produced in a 
manner not permitted in Switzerland must be clearly labeled as such. 
Methods not allowed in Switzerland include the use of hormones, 
antibiotics and other anti-microbial substances in the raising of beef 
and pork as well as the production of eggs from chickens kept in 
certain types of battery cages. The United States will be monitoring 
developments in this matter for indications of any adverse influence on 
U.S. agriculture sales in Switzerland.
    Government Procurement Practices: On the federal level, Switzerland 
is a signatory of the WTO Agreement on Government Procurement and fully 
complies w